When I hear the word “easy” in an investment context, the first thing that comes to mind is automated. This is the idea behind paying yourself first with salary deductions. If you don’t make these things automatic, you will most definitely find other more pressing uses for your funds which will prevent you from saving.

Likewise, when you consider increasing your investments in shares, there are two ways that you can consider. These are dividend reinvestment programmes and complementary share purchase programmes.

Let us look at dividend reinvestment programmes first.

To begin with, the definition of this programme is “an equity investment option offered directly from the underlying company. The investor does not receive quarterly dividends directly as cash; instead, the investor’s dividends are directly reinvested in the underlying equity.” Wikipedia.

In layman’s terms, you own a stock, and you receive dividends, but instead of collecting the dividends, you give the cash (dividend) back to the company and they use it to buy more shares of the company that you already own.

There are numerous benefits to participating in a dividend reinvestment programme and we will deal with a few of them in this article.

The first one is that you increase your shareholdings with little or no effort on your part. Once you have signed up the requisite forms, the transfer of cash for the payment of the shares is done behind the scenes and there is no work done by the investor.

The most difficult part for you as the investor is to check your account and watch your shareholdings increase.

For the thrifty investors, a dividend reinvestment programme is very attractive, because there are immediate savings involved. A regular transaction done to purchase shares will attract several different costs. In Jamaica, these are trade, cess, and commission fees which all attract General Consumption Tax.

The good news for a dividend reinvestment programme is that you can bypass these fees while increasing your stock holdings. If you decide you have built up your holdings to a very attractive level, you can then cease your participation in the programme as it is completely optional.

A third benefit of the dividend reinvestment programme is that it allows investors to benefit from dollar cost averaging. That is just a fancy way of saying that you buy shares over time at different prices, and will benefit from times when the price is lower, as this will decrease your average purchase price of the shares and give you more shares.

There is another way to increase your investments in the company, and this is through a complementary share purchase programme. This allows investors to buy additional shares at select periods with the same cost savings found in a dividend reinvestment programme. The key difference is that you are not limited by the amount of your dividend. If you have spare funds to invest, you can add quite sizeable amounts to your existing share holdings.

It would be pretty understandable if you were to ask, why should I give up my cash dividends to participate in a dividend reinvestment programme? And that is a fair question.

To answer it, let us look at what generally occurs. Most times, you the investor will collect your dividend cheque and then you forget to lodge it, or you lose the cheque or – admit it – you spend it on foolishness, or even more realistically it seems like such a small amount.

Looking down the road, you can’t remember what you spent the money on, but had you participated in these programmes, assuming the company has good prospects, you would be watching your assets increase every single year and could surprise yourself with the value of your portfolio.

These easy ways to increase your share holdings are worth exploring!

Yanique Leiba-Ebanks, CFA is the AVP, Trading & Business Development at Sterling Asset Management. Sterling provides financial advice and instruments in US dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm