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Thursday, 6 March 2008

AGL Energy Dividend Reinvestment Plan (DRP)

AGL Energy has sweetened their DRP conditions slightly - apparently they need to raise some funding. The new DRP scheme provides for a 2.5% discount to the weighted average price prior to the record date, plus they are now going to round UP any fractional stock entitlements that result from the DRP. The latter is a boon for small shareholders, and used to be quite common with DRPs back in the 80s.

Although I generally prefer cash dividend payments to DRPs due to the extra paperwork and complications around CGT calculations for my tax return when I sell a shareholding that includes DRP stock purchases, I've decided to enrol in the AGL DRP. I have two AGL holdings - one on my LE margin loan account and another on my Comsec margin loan account. The added value of the DRP is just enough to make the extra record keeping and tax calculations worthwhile:

LE AGL holding.............510 shares
current price..............$10.31
Dividend...................26c x 510 = $132.60
Example DRP price..........97.5% x $10.31 = $10.05225
DRP shares due.............13.19 shares
rounded up to..............14 shares
DRP value..................14 x $10.31 = $144.34
DRP premium................$11.74 more than taking the cash dividend

Since I have two similar AGL holdings in separate accounts, the total benefit of participating in the DRP is around $40pa, so it's worth the small overhead in extra paperwork.

Of course in reality the DRP premium is coming out of AGL's profits, so if all shareholders participated in the DRP (and there wasn't any rounding benefit) they'd be no net benefit in participating in the DRP. However, many stockholders won't use the DRP, and large shareholders won't benefit from the rounding-up effect, so I should be slightly better off using the DRP than if there wasn't any DRP available at all. This ignores any potential gain or loss that might result from investing the cash dividend elsewhere.

Copyright Enough Wealth 2007

2 comments:

Rocky said...

This isn't related to your latest post, but I remember you saying this last year sometime.

http://www.theaustralian.news.com.au/story/0,25197,23331881-643,00.html

Tax cuts should go into super to stem inflation.

enoughwealth@yahoo.com said...

Yes, if you blog about the bleeding obvious early enough, you end up looking like an opinion leader ;)