ZagTrader

Corporate action events

DRIP: Dividend Reinvestment

Written and maintained by ZagTrader. Last reviewed . How this page is sourced and checked

DRIP is a dividend that holders can take in cash or have reinvested in additional shares of the company, which the issuer or its agent buys in the market. Holders choose between the cash and the reinvestment option.

Code
DRIP
Usually announced as
CHOS (VOLU also allowed)

What DRIP means

In a dividend reinvestment event, the company declares a cash dividend and offers to use it to buy more of its shares for holders who ask for that. The shares are bought in the market, so no new share capital is created. Holders who do not elect normally just receive the cash.

The number of shares received depends on the cash dividend and the purchase price achieved, so it is known only after the purchase. Residual cash that does not buy a whole share may be paid out or carried forward. For tax, the holder has usually still received a dividend, even if it was reinvested.

A standing reinvestment plan that a holder signs up to once is a service, not a separate event: the SMPG grid says such plans are not considered events.

When you see it

  • An MT564 with :22F::CAEV//DRIP and :22F::CAMV//CHOS, with options CASH and SECU (reinvest), one of them flagged as the default with :17B::DFLT//Y. The SMPG grid also allows VOLU. Expect the ex date, record date, the election deadline and two payment dates: the cash date and the later delivery of reinvested shares with the purchase price.
  • DRIP vs DVOP: in DVOP the shares offered are newly issued by the company; in DRIP the cash is used to buy existing shares in the market. DRIP vs DVCA: a plain cash dividend has no choice (or only a currency choice). DRIP vs DVSE: a stock dividend pays shares without a cash alternative. In some markets, such as South Africa, the SMPG notes that DRIP is processed as two events because of dividend withholding tax.

What to do next

  • Collect elections before the account servicer’s deadline and instruct with an MT565 for the reinvested quantity. Without an instruction, the default option applies, usually CASH.
  • When the MT566 confirmations arrive, reconcile the cash leg and the share leg separately: dividend gross and net amounts, withholding tax, the purchase price and the shares credited, plus any residual cash.
  • Report the full dividend as income even when it was reinvested, and set the book cost of the new shares at the reinvested amount.

Where it appears in MT and ISO 20022

MT (ISO 15022)

  • MT564 sequence A (GENL): :22F::CAEV//DRIP, with :22F::CAMV//CHOS (or VOLU); options :22F::CAOP//CASH and //SECU in sequence E.
  • MT565, MT566, MT567 and MT568 sequence A: :22F::CAEV//DRIP.

MX (ISO 20022)

  • seev.031 CorpActnGnlInf/EvtTp/Cd = DRIP, with CorpActnGnlInf/MndtryVlntryEvtTp/Cd = CHOS; default option flag in CorpActnOptnDtls/DfltPrcgOrStgInstr/DfltOptnInd.
  • The same event type element is used in seev.033 (instruction) and seev.036 (movement confirmation).

Questions

What is the difference between DRIP and DVOP?
Where the shares come from. In DVOP the company issues new shares to holders who choose shares. In DRIP the dividend cash is used to buy existing shares in the market.
What happens if I do not instruct on a DRIP event?
The default option applies, flagged with :17B::DFLT//Y in the MT564. It is normally CASH, so the holder simply receives the dividend.
Is a reinvested dividend still taxable?
In most tax systems yes: the holder is treated as having received the cash dividend and then bought shares with it. Withholding tax is usually applied before reinvestment.