When a company pays a dividend, shareholders can choose to receive it as cash — or, where a dividend reinvestment plan (DRIP) is available, they can have the cash automatically used to buy more shares. For employee share plan participants, dividend reinvestment can significantly compound the value of their share holding over time.
Last reviewed:
Definition
Dividend reinvestment is the process of automatically using dividend payments to purchase additional shares rather than receiving them as cash, compounding the total number of shares held over time.
On the payment date, instead of the dividend being credited to the employee's bank account, the cash is used to purchase additional NGX shares on the employee's behalf. The purchased shares are added to their CSCS account. Over many years, this compounding effect — dividends buying more shares, which in turn generate more dividends — can substantially increase the total value of the portfolio.
Standard Nigerian employee share schemes pay dividends directly to employees as registered shareholders. Full automated DRIP functionality requires specific scheme rules to be drafted to accommodate it. Shares Saver supports schemes that choose to reinvest dividends during the vesting period as additional allotted shares.
Reinvested dividends are still subject to Withholding Tax at 10% at source — even if the cash is not paid out directly. The WHT is deducted before the reinvestment occurs. Consult a qualified Nigerian tax adviser for your specific situation.
No. Dividend reinvestment is optional. It requires specific scheme rule provisions and coordination between the company, its registrar, and the scheme administrator. Not all ESIS in Nigeria currently offer this feature.
Yes — where reinvestment is offered as an option. If the employee elects not to reinvest, dividends are paid as cash to their registered bank account in the normal way. The scheme rules will specify the default treatment and the process for opting in or out.
Under a DRIP, instead of receiving a cash dividend payment, the equivalent value is used to purchase additional shares in the company on your behalf, which are then credited to your CSCS account. Not all NGX-listed companies offer DRIPs — availability depends on the company dividend policy. Check the specific company terms before expecting automatic reinvestment.
Yes. Each reinvestment uses your dividend entitlement to purchase additional registered shares. Over time, consistent reinvestment can compound your holding because you own more shares that are each entitled to future dividends. This compounding effect is one reason long-term investors consider reinvestment as part of their strategy.
Yes. Nigerian withholding tax on dividends applies regardless of whether the dividend is received as cash or reinvested. The withholding tax is deducted first, and only the net dividend value after tax is used to purchase additional shares. The gross dividend is not reinvested in full.
No. Dividend reinvestment is only available where the specific company offers a reinvestment option. Many NGX-listed companies pay dividends exclusively in cash without a formal DRIP. Some investment platforms offer a platform-level reinvestment feature that uses your cash dividend to repurchase shares, but this differs from a company-operated dividend reinvestment plan.
Important disclaimer
This article is for general information and educational purposes only. It does not constitute financial advice, investment advice, legal advice, or tax advice. The value of investments can fall as well as rise. Seek independent regulated financial advice before making any investment decision. Shares Saver does not provide financial advice.
Shares Saver lets you buy and own NGX-listed shares directly in your own name through regulated broker execution.
← Back to the full investing glossary