Question 625 dividend re-investment plan, capital raising
Which of the following statements about dividend re-investment plans (DRP's) is NOT correct?
(a) DRP's are voluntary, shareholders only participate if they choose.
(b) DRP's increase the number of shares.
(c) The number of shares issued to a shareholder participating in a DRP is usually calculated as their total dividends owed, divided by the allocation share price which is usually close to the current market share price.
(d) DRP's do not incur brokerage costs for the shareholder. This is unlike the case where the shareholder uses the cash dividend to buy more shares herself.
(e) If all shareholders participated in a company's DRP, the company would not pay any dividends and the firm's share price would not fall due to the cash dividend or the DRP.
Copyright © 2014 Keith Woodward