Archived articleThis is an archived article from 2014 - please note that any content within the article may be out of date.
Dividend Reinvestment Question
I have just started to look after my own SIPP which I am happy with the performance. My question :- is it better to re-invest dividends in the company who issued the dividend or would it still pay to collect the dividend and add to my monthly saving and reinvest within another company, this would make me a small saving on the year as I get charged 2% for div reinvestment.
Any thoughts would be appreciated.
Thanks
Lammy
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2 comments
Thanks for the reply TheWatchmaker, I thought I was correct but my inexperience needed confirmation.
Hi Lammy,
Personally, I use your second option - take dividend as cash into account and re-invest it when I add further funds.
The drawback with automatic reinvestment is two fold.
i) Higher commission rate
ii) Share price can get cynically manipulated by the market makers.
e.g. Take a look at Dillistone (DSG) - dividend was paid yesterday 13-Nov-14. Share price was raised from 98p to 100p yesterday afternoon and again to 103p this morning. There was very little volume of trading - therefore, the most likely explanation is that the price was raised because it is common knowledge that some investors would be re-investing their dividend today.
Therefore, you can get hit twice by high commission rate and falsely elevated share price.