What Is Dividend Reinvestment?
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.
Dividend Reinvestment. 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.
How dividend reinvestment works
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.
Dividend reinvestment in Nigerian ESIS
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.
Tax treatment of reinvested dividends
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.
Questions
About dividend reinvestment
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.
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