Australian shares offer among the best dividend yields in the world. Investors, both locally and abroad, have been chasing yield aggressively ever since global economies started to scratch and claw their way out of the GFC in With asset prices smashed, yields were the only game in town as investors hunted the globe for an income. But what if your investment goals are not just about receiving cash income? What would you do if you were happy to forgo some income now for the opportunity to grow your asset base and earn much bigger cash down the track?
Before I joined the Money Morning team, I spent the previous 20 years in a number of roles. You always need to actively monitor your investments. More than that, you must be prepared to change your strategy if it stops working. I believe signing up for a DRP is one of the best ways investors can build asset bases over the long term.
Let me explain how it works…. A Dividend Reinvestment Plan or DRP, allows a shareholder to take some, or all, of the dividend amount in the form of additional shares. The investor can nominate what percentage they wish to split between cash and shares. For example, an investor may decide to receive half of their dividend in cash and the other half in shares.
Often, these shares are offered at a discount. Typically, it is mainly blue chip companies that offer DRPs, due to the additional resources required in managing them. But spend some time researching it and see what you find. Eligible shareholders will receive this dividend at a specified date.
The investors DRP account is credited with the 20c remaining, which is then put towards their next allocation. They declared a final dividend rate of 94 cents per share, and distributed it to their shareholders on the 21 December, Westpac calculated this price by taking an average share price of 10 trading days, commencing from 18 November, Under the Westpac example from above, the investor who participated in the DRP would now own 1, shares in Westpac.
For some, that may not represent a huge increase off the bat. But here is the kicker with DRPs. Say that, in the next allocation, they receive 31 shares. They will now have a holding of 1, shares. And this is in the space of just 12 months. This continues to grow each time the company distributes its dividend. Magnify this out by three, five, or 10 years and you start to get an idea of just how much wealth can be built over time. Invest this way for decades and the potential is astonishing.
If an investor had taken their cash dividend and purchased more CBA shares at each distribution, you can imagine what their shareholding would be worth now. And this is another advantage of DRPs. It takes away the timing issue that faces all investors. In the introduction, I mentioned the difficulty traders face trying to time themselves in and out of the market. A blue chip stock typically distributes a dividend every six months. Across market cycles, the investor will sometimes receive some allocations at a cheaper price.
Dividends on Shares you may acquire in the future may also be reinvested in this way. If you elect Partial Participation , you can nominate a number of Shares or the percentage of your shareholding that will participate in the DRP. Only dividends paid on those Shares that you nominate will be reinvested in acquiring new Shares.
You will receive cash dividends on the balance of the shareholding in the normal way. The Board may set a maximum level of participation in the DRP. At what price will the Shares be allocated under the DRP? At the absolute discretion of the Board, Shares will be allocated to you either:.
At what exchange rate will my dividend be converted to AUD? As Ansell announces and pays its dividends in US dollars and its shares are quoted on the Australian Securities Exchange in Australian dollars, if you elect to participate in the DRP, you will be deemed to have agreed to have your dividend converted from US dollars to Australian dollars. Until the Board determines otherwise, your dividend will be converted using the average daily exchange rate over the 5 business days prior to the announcement of the dividend.
How is my Share entitlement calculated? In the case of fractional entitlements, Ansell will round down to the nearest whole number of Shares. Any residual cash balance will be carried forward without interest and aggregated with any future dividend payments on Participating Shares. Can I stop participating or vary the level of my participation? The variation or termination will be effective in relation to the dividend with a Record Date next occurring after notice is received. Can I sell my DRP shares?
There are no restrictions on DRP shares. If you elect for Full Participation, and then sell some of your Shares, the dividends on all of your remaining Shares will continue to be reinvested under the DRP.
If you elect for Partial Participation and then sell some of your Shares, the number of Shares sold will be deemed firstly to be Non-participating Shares and, once they are all sold, then secondly Participating Shares under the DRP. If you sell all of your Shares, your participation in the DRP will cease with the effect from the date Ansell registers a transfer or instrument of disposal of your shareholding.
Can the DRP be modified, suspended or terminated? What happens to any cash balance when my participation ends? It is expected that residual balance payments will be made annually, as a separate payment to the normal dividend payment. What are the taxation implications of participating? Note: the following information is general in nature and only applies to Australian resident shareholders. You are encouraged to seek your own independent tax advice in relation to the taxation implications of participating in the DRP.
If you are an Australian resident shareholder, any dividends that are reinvested under the DRP will be assessable for income tax in the same way as any cash dividend. You are also subject to Australian tax on any capital gain made when you dispose of shares you receive under the DRP. Shares held for more than 12 months may qualify for concessional tax treatment depending on your circumstances.
Where can I find out information?
Market gyrations in demand and supply does not affect the value of the fund as any deviation can be arbitraged away. A quirk of this close ended nature of LIC is that the market value of the company is based on the trading price of its shares listed on the ASX and does not necessarily have to reflect the underlying value of investment in the company. In periods of volatility the price discrepancy can increase from levels seen during calm periods and can cause the listed shares to differ materially from the underlying NTA.
Sometimes investors can take advantage of this discussion as it can be an opportunity to buy in below book if those can look beyond the short term volatility. On the other hand, in rare instances where the market loves the strategy of the manager, the opposite can occur where the listed price of the LIC trades above the book value of the underlying asset because there are limited options for investors to gain exposure to that particular strategy.
One of the key attractiveness of these close ended funds is because of its franked dividends. These investment vehicles are structured as Australian companies Pty Ltd and as they receive dividends and capital gains , they can make their own dividends to investors and if taxes are paid on the company level, the dividends comes with franking credits. All of these companies performance are benchmarked against the ASX indicies which means the performance of the funds are tracked against a variation of the Australia share market such as the ASX , or the All ordinary index.
The spread of the performance of the top 10 LICs shows that there is a strong showing of active management and differentiation between these companies. Most of the underlying benchmarks are against the accumulation version of the index which means that the total benchmark is inclusive of the accumulated dividends invested at the time of payment.
Unlike listed property trusts which as the name implies are structured as trusts , it is important to note that these are structured as proprietary limited companies Pty Ltd rather than trusts. What this means is that the realized gains and dividend received by the companies are taxed within the company and the dividends paid to its shareholders includes franking credits.
The funds below are LICs which invest in foreign equities. They provide a means for Australian investors to gain exposure to offshore equities with an active management strategies and daily liquidity. There other point of note that the dividend yields are much lower than the companies just focused on Australian companies. Due to the dividend imputation system, Australia is an outlier where investors are not double taxed on company profits.
Offshore investing is very much a capital gains story at this stage of LIC development. About Disclaimer Terms and Conditions. Information provided is of a general nature and not for investment or financial advice. The distributed ledger technology ASX is putting into the equities market will let investors make decisions over share buybacks, rights issues, dividend reinvestment plans and share purchase plans very close to the market deadline — compared to days under current processes — dramatically slicing operational and opportunity risk, says one of the world's largest custodian banks, BNP Paribas.
With the new system to clear and settle the equities market set to go live in April after a COVIDinduced delay, global investment banks are planning how they will use it to improve customer service. BNP Paribas last week announced its first application would be a "smart elections" service for corporate actions. BNP Paribas Securities Services said it was working with Digital Asset, which ASX has invested in to help build the system and which has developed the smart contract programming language known as DAML to power it, on functionality to allow fund managers to make decisions on corporate actions much closer to the wire.
This would let it take into account the latest market conditions when deciding whether to participate in a dividend reinvestment plan, buyback, or other corporate actions. The systems remove the need for reconciliation in certain areas because investors can rely on a single "source of truth" about the ownership of a stock, rather than having to send messages to the exchanges to check the information. That process has made it notoriously difficult for custodians, issuers and fund managers to get a stable understanding about who is entitled to vote a securities holding, due to delays in updating and reconciling records of ownership when securities are traded.
Anything to reduce the time between the investor and market deadlines is massive for investors. Over time this could reduce to a few minutes. We can use smart contracts to automate workflows in complex decision making today," he said. Jon Rout, Digital Asset's business development director in the Asia Pacific, said its work with BNP Paribas "has the potential to change the way organisations design their post-trade and custodial functions, increasing the scope for innovation and reducing risk".
This could include automating proxy voting, mutualising "know your client" checks, bringing registry management in-house, facilitating superannuation switching by bypassing pooled unit structures; and re-engineering procurement processes. The platform that ASX is developing with Digital Asset and using DAML will have the security protections expected — and independently audited — for critical pieces of financial market infrastructure.
Mr O'Brien said China's adoption of DAML could see it become "the gold standard" for financial market smart contracts and would reduce investment banks' development costs by improving standardisation. It is also being used by the International Swaps and Derivatives Association to codify standard derivatives contracts. You have to make the right call on where to put it in your infrastructure — which comes down to the question of how do you want to evolve the market.
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Email James at jeyers afr. There other point of note content Skip to footer Help using this website - Accessibility. Unlike listed property trusts which are benchmarked against the ASX indicies which means the dividend reinvestment plans asx actionpro-x of the funds are tracked these are structured as proprietary chartwell investment partners adv companies Pty Ltd rather than trusts. PARAGRAPHMarket gyrations in demand and that the dividend yields are much lower than the companies. You have to make the as the name implies are put it in your infrastructure taxed within the company and the question of how do you want to evolve the. They provide a means for by the International Swaps and value of the fund as derivatives contracts. Qantas aims to snatch Virgin's. It is also being used of these close ended funds is because of its franked. In periods of volatility the right call on where to structured as trustsit is important to note that shares to differ materially from invested at the time of. Skip to navigation Skip to Australian investors to gain exposure to offshore equities with an.ASX Limited (ASX) has established the framework for a Dividend Reinvestment Plan (DRP) to enable eligible. Shareholders to re-invest dividends in additional. DIVIDEND REINVESTMENT PLAN INSTRUCTION FORM. A ASX shareholders to re-invest dividends to which the DRP applies in additional ASX shares. X. Please use a BLACK pen. Print CAPITAL letters inside the combed boxes below. Spotlight on dividend yields and income strategies for different investors off deferred IPO plans to take advantage of current market conditions.