DRP Calculations - Maximize your Dividends!

In a previous post, I had talked about the positive and negative aspects of Dividend Reinvestment Plan, or DRP in short. A key positive for DRP is the compounding feature which allows you to reinvest your dividends and snowball your assets. However, in the process subscribing for DRP, some of the dividends will be wasted due to roundoff calculations. This post teaches you how to allocate shares between DRP and cash so as to minimize wastage.

First off, dividends declared. 

Suppose your company has a DRP program and you want to subscribe to it. As an example, Keppel Reit declares a dividend and announces it on SGX website. This dividend consists of a few components such as taxable income, tax-exempt income distribution, capital distribution and other gains.

During my first attempt to claim scrip dividend, I learnt that new shares issued are counted not based on the lump DPU of 1.68 cents but instead, counted separately under each component and then summed together. This presents a problem as roundoff calculations are repeated at each component and it really eats into your allocated dividend. All the more important that you maximize your scrip dividends! 

So how to maximize?

Subscribing to DRP does not deprive you of cash dividend; you can do half-half. Basically in the DRP form you receive, you will be asked to allocate how much of your shares holding to count for cash dividends and how much to count for scrip dividend. 

Here lies the method to maximize your dividends:

1. Allocate the minimum number of your shares holdings to DRP such that the new shares issued to you is the maximum
2. Allocate the remaining shares holdings to receive cash

Example

Below is the Google sheet I created to address the above steps and you can download it here. 

The cells in orange need to be filled up by the user. The dividend structure is that of the example I shown at the top. The issue price of new shares is what you will be paying for using the dividend received. It is usually priced at a discount and announced separately later. In this case, it is $0.9802.

Suppose I have 3000 shares of Keppel Reit and I allocate it entirely to DRP, I will receive 49 new shares in total. However, if i decrease it by 1 share, I will still receive the same amount. Hence your objective is to find out what is the lowest Shares allocated to DRP so that the maximum new shares is still received then assign the remaining to receive cash.

Cost Savings?

Between 3000 shares and 2949 shares (which is the optimal) to DRP, there is an extra $0.85 that can be saved. This may be insignificant but it is a matter of principle to me. For others, that 10 minutes to save this $0.85 is worth it. 

Hopefully this post will save a lot more $0.85 going forward. If you know people doing DRP, do forward this post to them.   

My Stock Holdings (April 2016)

After selling my HPH trust, above is the make up of my portfolio. Didn't receive any dividend for the month of April so refer to my dividend bar to the right.

Having started using SGXcafe near mid-April, I may eventually stop posting this monthly updates since I incorporated my portfolio data into the blog and you can see it any day of the month. I highly recommend this website to track your portfolio as it features many uses like calculating your variance (measure of risk) and beta. It assesses your portfolio to see which stocks you should add more through iAssist and also to recommends stocks outside your portfolio to reduce the level of risk (iSuggest). 

Do check it out!