A DRIP-ping trend

The Dividend Reinvestment Plan (DRIP), where investors have the option to take shares, cash or a bit of both could well become a trend among public-listed companies, especially those with steady dividend payouts, say analysts.

Banks especially are expected to do this ahead of the implementation of Basel III in 2012, which will require them to have a higher amount of capital-to-loan ratio (capital adequacy ratio). "It is particularly relevant for those requiring only a little capital, which would make a rights issue an uneconomical exercise for it," Jupiter Research Sdn Bhd head of research Pong Teng Siew told Business Times.

Of the three DRIPs announced in the last year or so, two are from banks, namely Malayan Banking Bhd and AMMB Holdings Bhd while the third is Axis-REIT Managers Bhd. Maybank, the DRIP pioneer, had an overwhelming response with an 89 per cent take-up rate. AMMB has yet to announce the results of the scheme while Axis-REIT still needs to get unitholders' approval. Another analyst, who declined to be named, said sectors which give regular and strong dividend payouts such as the real estate investment trust, telecommunications and banks could well start to favour DRIP as an alternative to cash dividends.

Couple this with a decent upside potential to the stock, and shareholders themselves could take a liking to opting for dividends to take the form of shares. DRIPs so far have accorded shareholders with a discount of up to 10 per cent to the market price. "From a minority shareholder point of view, it gives them an opportunity to evaluate their standing in the company. If they are still happy with the company then they can opt to reinvest in it. It is voluntary and it accords them more choice, which is always a good thing," OSK Research Sdn Bhd research head Chris Eng said.

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