Monday, 22 August 2016

Distribution/Dividend Reinvestment Plans (DRPs)

I know I have been slow with this but better late than never. Congrats to Joseph Schooling for winning Singapore's first Olympic gold medal. It's a fantastic achievement and something to be proud of for Singapore!

On the other hand, I feel both happy and sad for the Malaysian badminton players in the Olympics. They came so close to winning their first Olympic gold medal for Malaysia and I hope their hard work & efforts will pay off in Olympics 2020.

Sigh. It hurts to watch Lee Chong Wei lose his third consecutive Olympic badminton final and receive a silver medal. I reckon he is the most deserving Malaysian athlete to win the first Olympic gold medal for Malaysia but it is not to be this time round.

Anyway, that's enough of a sporting update from me and I'm going to write about how August is a big distribution/dividend month for me instead. I noticed this after looking at the Dividends Upcoming and Collected sections of my SGXcafe portfolio. Always nice to see passive income flowing in.

As the amount of distributions/dividends received increase with the size of my portfolio, I have started to consider whether it's worth participating in the available Distribution/Dividend Reinvestment Plans (DRPs). These refer to plans that allow unitholders/shareholders to automatically reinvest distributions/dividends to accumulate more stock without paying brokerage fees.
Especially with the recent changes to the brokerage fees of the Standard Chartered Online Equities Trading Platform in Singapore. In summary, there are now minimum brokerage fees to be charged for each trade and they are SGD/USD/GBP 10 on the SGX and LSE markets for Personal Banking Clients (i.e. Non Priority Banking Clients) like me.

Considering how aggressively Standard Chartered Bank (SCB) had been marketing this Online Equities Trading Platform as the only one with no minimum brokerage fees in Singapore, this turnabout was disappointing at best.

To implement a Dollar-Cost Averaging (DCA) approach with index ETFs effectively, it's important that brokerage fees are as low as possible. Where I could invest small cash amounts previously to take advantage of market dips in times of uncertainty, I'm now forced to use larger cash amounts and have to wait for bigger market drops. It's annoying but I will just have to adjust my investing strategy.

This also means that picking up small numbers of units/shares via the DRPs is a more viable approach now and definitely something worth considering. There seems to be no easy way to find out which of the stocks I invest in offer such DRPs other than monitoring the actual distribution/dividend corporate announcements or waiting for SCB to inform me about them. 

Generally, REITs and Business Trusts usually offer DRPs and I reckon this is a good way to increase their asset allocations slowly in my share portfolio without actually using my investment cash. The problem is that my asset portfolio is over weighted on real estate now and I'm hesitant to add to my positions. Maybe when it's more balanced in the future?

OCBC Bank offers DRPs and I'm kicking myself for not participating in it earlier in the year. I'm planning to increase my exposure to the Financial Services industry in my share portfolio as I believe it will continue to be one of the main drivers of economic growth in Singapore. And this goes beyond just the banking sector.

Given the increasing demand for healthcare services due to an aging population and general decline in health from the modern lifestyle, it was good to know that Raffles Medical Group offers DRPs as well. I only have a small portion of healthcare stocks in my share portfolio and I would like to grow this more aggressively.

I know what I'm saying sounds counterintuitive to my focus on index ETF investing. It's just that index ETFs don't offer DRPs and I can't get excited about nothing. After all, this discussion is more in the context of DRPs and less about the utilisation of my investment cash. 

1 comment:

  1. Hi thanks for sharing. I've not done DRP before as I'm not sure how to sell the odd lots in future. Any advice please?