Question

Explain the consequences of a badly executed Dividend Reinvestment Plan
especially in this post Covid-19 economic scenario.

Answer 1

Ans: Consequesnces are like effects on incomes it may be positive or negative. Here we can understand by how badly executed dividend reinvestment plan in present scenario.

1. Concentration of holdings: At present investors do not diversify their expection of returns so they can concentrate of holding by reinvesting the dividends. If they recieved cash they have chances to divercify but now all business have at recession level.
2. Administration: Their will be more effect on company because of tax records will different cost base for each investors.
3. Not suitable for short term investment: Dividend Reinvestment Plan is not suitable for short term investment compare to purchase shares from stock market
4. No income stream: For retired investors dividend reinvestment plan will not suitable. At this scenario investor look income immediately but dividend reinvestment plan will take long time to make more money.
5. No control on price and time: Investors doesnot have control over price and time. Investor must purchase shares at considerable price fixed by company and specified time.