RE: Horult7 May 2025 11:55
Long hypothetical post incoming ;-)
For holding long term divi payers in pension pot, I picked up a tip recently which is to reinvest your divi early and I did some spreadsheeting to check it out. Most people wait for dividend payment to arrive before reinvesting which seems logical so you know what value you are getting. Though in most cases by the time your payment arrives SP has already, at least partially, recovered.
If you look at the charts for LGEN it dropped ex divi day 24th April and has partially recovered, divi payment is due 5th June it may have fully recovered by then. Or look at PHNX drop ex divi day 3rd April has fully recovered and more, divi payment is due 21st May ( try and ignore the additional blips on both charts 4-10 April from the trump tariffs saga). So you are reinvesting at the same or higher price. So the tip is to reinvest early on the ex divi day dip. It should not be too difficult to calculate what your divi payment is going to be, knowing what you hold and what the % is going to be ( www dividendmax com is a good source) and say you estimate your payment to be £500 you could always chuck £600 (or more) in instead, then sell some to pay yourself back the difference when the money actually comes in and have a little swing trade out of it.
Most companies have interim payment of a lower value and a final payment of higher value but lets theory craft two 5% payments and you have £10k invested in a company which has a 50p SP - and its the most stable company in the world SP never changes, except for the dividend day dip and recovery back to its 50p price.
£10k invested at 50p SP - 20,000 shares, drops 5% divi day and recovers by payment date you buy back in on payment day
20,000 shares interim divi £10,000 at 5% gives you £500 so you buy at 50p for additional 1,000 shares
21,000 shares final payment £10,500 at 5% gives you £525 so you buy at 50p for additional 1,050 shares
-you now hold 22,050 shares
but if you buy in early on ex divi day drop
20,000 shares interim divi £10,000 at 5% gives you £500 so you buy on ex divi dip at 47.5p an additional 1,052 shares
21,052 share final divi £10,526.32 at 5% gives you £526.32 so you buy on ex divi dip at 47.5p an additional 1,108 shares
- you now hold 22,160 shares
so a difference of 110 shares is extra £55 in the first year - yeah it does not look at lot to bother with, but we are talking long term pension pot so with the compounding....that actually works at out an extra £1,362 after 10 years, £7,413.76 after 20 years and an extra £30,270 after 30 years.
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