Definition of Dividend reinvestment
Dividend is the share of profit distributed by company out of it’s earning to the company’s shareholders. It is basically percentage earning of investors out of their investment in a company.
Dividends are mostly paid annually but can be quarterly or interim too.
Dividend are mostly in the form of cash but there are other options available as well and one of it is Dividend reinvestment plan.
Brief Explanation Of Dividend reinvestment
Dividend reinvestment is an offer made by company to its shareholders to re investment their dividend amount in the company rather than receiving the amount in cash.
Advantages of Dividend Re Investment:
- This benefits investor in a way that his amount gets immediately invested and starts earning profit,
- broker or agent fee is saved by investing directly into the company
- Increases investor’s share or number of shares in the company.
- More number of shares means increased dividend profit coming up.
- Reinvestment are sometimes offered to existing shareholders at discounted price.
- From company’s perspective offering Dividend reinvestment to the shareholders means not paying them in cash and hence retaining the capital.
Dis Advantages of Dividend Re-Investment:
- Reinvestment are not easily liquidated and create problem when cash is immediately required.
- No matter you re invest or not your calculated profit is your taxable income.
- Sometimes re investment at some other company might be more profitable to you than the same one.
- You have to keep detailed record, calculation and tracking of you re investment.
- Re investment might sometimes not be totally free of consultancy fee, their might be hidden charges from the company
An important point to consider while reinvesting your dividend is to be sure that the profit entitled to the shareholder, no matter reinvested or received in cash is a taxable income.
