Should I participate in dividend reinvestment plans (DRP)?

From an income tax (and accounting) perspective, even, if you DRP (dividend reinvestment) it is still taxable income.

It’s a personal decision whether you DRP or deposit the dividends into your bank account.

It does complicate future sales because when/if you sell your shares you will have multiple parcels – the original parcel plus two more DRP quantities for each year that you choose to DRP. When or if you sell that will turn into quite the calculation.

Instead, you buy one parcel and sell one parcel the capital gains tax calculation is relatively straightforward.

Most accountants I speak to say “don’t DRP”, but it is up to you.

Financially, with a rising share price of a company, over the years you will profit more by DRP-ing whereas with a falling company share price it will not be as profitable to DRP. You will be buying at a higher share price that subsequently drops.

If you have any questions, don’t hesitate to get in touch.