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.
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.
Shares Saver lets you buy and own NGX-listed shares directly in your own name through regulated broker execution.
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