Question 1: I hold shares in NAB, ANZ and Westpac. They will pay dividends in a couple of months. Is it wise to reinvest the dividends in these banks for shares at the present market price? What do you say about reinvesting in the same companies?
Answer: This is a really good question because there is no right or wrong answer to participation in DRPs (dividend re-investment plans). Many years ago, companies offered big discounts on shares purchased through a DRP (sometimes as high as 7.5%), and it was arguably a ‘no-brainer” to participate. Today, most of the discounts have gone - so it is not a straightforward decision.
I think a DRP makes sense if: