Take the money or reinvest?

A key attraction of investing in shares is the potential to earn regular, passive income through dividends. While a number of listed companies scaled back or suspended payments in 2020 to maintain precious cash reserves, dividends have been very much back on the agenda in 2021 and 2022.

A twice-yearly dividend is a welcome addition to many household incomes. But if you don’t need the cash, it can be worth thinking about a dividend reinvestment plan (DRP). It’s an option that lets shareholders take the value of a dividend in additional shares rather than cash.

DRPs are not limited to companies. They are also offered by exchange traded funds (ETFs) and listed Australian property trusts (A-REITs). Many BetaShares ETFs, for instance, come with the option of a DRP. The basic principles, especially in terms of what to consider, are much the same across shares, ETFs and A-REITs.

WHY OFFER A DRP?

Companies have a compelling reason to offer a DRP. It lets the business hold onto capital rather than paying it out in dividends. This means more money to reinvest back into growth opportunities, which ultimately