Dividend reinvestment plans allow the investor to automatically purchase new shares, thereby increasing the balance of shares held in the financial institution, in addition to offering the possibility of obtaining a high remuneration of dividends until their reinvestment through the accounts created For this end. Where shareholder accounts provide high remuneration, above other types of accounts, between 5% and 7% annual nominal interest and are usually exempt from administration and maintenance fees.
Its main drawback is that to access these products it is necessary for the shares to be deposited in the bank that issues the securities, which implies that the financial institution has to be changed. But in any case, another option for investors is to reinvest their dividends so that in this way they can boost their weight in the chosen securities. That is to say, they will have more and more capital in the shares purchases from one of the companies that present this very special characteristic.
It is a strategy that is used with some frequency by small and medium investors with a more defensive or conservative profile. Creating a stable savings bag facing the middle and especially long term. By having, therefore, a greater number of shares, your chances of making capital profitable increase progressively. Although for the same reason if these are depreciated the losses will be more bulky than before. All this as a consequence of increasing its presence in a listed company through this investment strategy that is increasingly frequented by stock market users.
Dividend classes
In any case, it must be borne in mind that there are many kinds of dividend distribution. The scenario is no longer the same as before, where there was only the option that this remuneration went directly to the shareholders' savings account. Of course, the offer has diversified and there are therefore other ways to collect the dividend that will depend on the profile that I present the small and medium investor. That is, if you need liquidity or, on the contrary, you prefer to increase your weight in the listed company. To a certain extent, it is a personalized treatment that this kind of remuneration offers in the equity markets.
From this very special general approach, it is time to discover the kinds of dividends that small and medium investors can find from now on. They are several and of diverse nature as you will be able to verify in this information. Some of them really innovative in relation to their mechanics in the distribution of the profits of the companies. And that they can come to you better than the rest at some point in your life. Although only a few companies have opted for these investment strategies.
Cash dividends
In the traditional dividend format, companies distribute a part of their profits, cash from their cash, which is received by shareholders and to which a withholding is applied (currently 19%). In this particular case, the number of shares in the company remains unchanged, so the shareholder receives money and his stake in the company remains the same. It is a way of recovering the profitability in the investment and especially if the term of permanence is not going to be very long. That is, you prefer to receive this money rather than increase your positions in the security in question. It is still the most common way to collect the dividend and the one chosen by the majority of companies listed in the selective index of equities in Spain, the Ibex 35.
Its main advantage lies in the fact that this dividend distribution will not depend on what happens in the equity markets. If not, on the contrary, it is money that will already be in your savings account from the date on which this payment to the shareholder is formalized. As well as its effect on investors by having a fixed and guaranteed money every year and whatever happens in the equity markets. To the point that it can be money that you did not have and it can lead you to indulge yourself at any time.
Scrip Dividend
This form of dividend distribution has become popular in recent years due to the problems of many companies to be able to continue paying a traditional dividend, since their profits had fallen significantly and there was no money in cash to maintain it. For this reason, they have decided on a more complex form of scrip dividend that hardly presents advantages for the shareholder and almost all for the company. It is true that it is a system that goes away imposing on some companies that make up the Ibex 35, but which has not been well received by a very specific profile among retail investors.
While on the other hand, it must be emphasized that this distribution in dividends is designed to have a greater weight in the company that distributes the benefits among its shareholders. It is a system that started very strongly, but over time has lost strength due to the risk that the share price could depreciate from that moment on. At a time when instability in equity markets is one of their main common denominators. In any case, it is present in the current offer of companies that are listed on the stock market at the moment.
With a charge to the share premium
This is a very special variant of the traditional dividend modality, in which the dividend is distributed to shareholders not with a charge to profits, but rather with a charge to the issue premium of the shares or undistributed reserves. This in practice means that the profits not distributed one year as dividends, become reserves on the balance sheet. Another option that is available at the moment is the one that has to do with the rights of the shares. Where, if you wish, you can sell them at market price. But waived the collection of dividends. In this sense, for the operation to be really profitable, you will have no other solution than to adjust the price very well to get rid of the rights of the shares.
On the other hand, it should be noted that in this system you have a deadline to execute this action in the equity markets. For this reason, it is necessary that you follow the price of the quotes to see if you can get extra money to which the distribution of dividends would produce you through the classic system of this distribution in dividends. The so-called dividend charged to reserves is also present. Where this distribution of dividends must meet the same requirements as the distribution of dividends charged to the result of the year. However, dividends will be distributed, as the name says, out of the company's available reserves.
Which model to choose?
Regardless of the chosen dividend distribution method, we must take into account the following when agreeing to the distribution. On the one hand, if there is a preferential dividend in favor of certain participations / shares Within the company, prior to the distribution, this priority dividend must be covered. While on the other hand, the time and form of payment of the agreed dividends must be established. The maximum term for the full payment of dividends will be twelve months from the date of the resolution of the general meeting where their distribution has been agreed.
In any case, the first thing that we have to take into account when proceeding to make a dividend distribution is that said distribution has to be made in favor of the partners based on its percentage within the share capital. Either way, in the end the decision will have to be made by yourself and based on personal interests, which may be different at different times in your life.
Index of securities with dividends
El Ibex Top Dividend is an index of the Spanish stock market that collects the 25 companies with the highest dividend yield in the Spanish market and whose objective is to collect the behavior of the companies that offer this type of compensation. The securities are weighted in this index based on their dividend yield adjusted by the company's free float and with a liquidity ratio based on their membership in the Ibex 35, Ibex Medium Cap o Ibex Small Cap. In another vein, shareholders who are interested in the remuneration that these companies will provide should know that during the next few months some of them will provide their shareholders with this payment.