Question

Many companies on the Bursa Malaysia encourage shareholders to participate in the Dividend Reinvestment Plan. The plan should be exercised with caution. Explain the consequences of a badly executed Dividend Reinvestment Plan especially in this post Covid-19 economic scenario.

Answer 1

Consequences of badly executed dividend reinvestment plan-

A. Dividend reinvestment plan will lead to purchase of additional share at a higher price and these shares can correct in post covid-19 era which can lead to an impending recession and correction in this share price.

B. It can even mean that the investor is really invested into the company for a longer time frame and these shares are not going to get at the similar levels for a brief time period.

C.The commission which are to be paid on the purchase of the shares should also be taken care of because it will be increasing the overall purchase price for the investor.

D.it can even lead to lesser amount of liquidity For investor because cash dividend would had meant that the investor are having a higher cash in their hand in the post covid-19 era in which liquidity is must.

E. It could also mean that there would be a negative growth in the portfolio of the investor and low diversification in the portfolio of investor because he would be invested in similar share for longer period of time.

F. It would also mean that investor would be badly stuck in such a situation in which he cannot sell his shares if there is a correction in share and he would be making a higher amount of loss.

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