$MAPLETREE INDUSTRIAL TRUST(ME8U.SI)$Many asked Whether to take cash or reinvest

Reinvest is like compounding. The more you reinvest the more your dividends compounds.

Let me show you a scenario. Assuming if you invest $1 in one share with 4% dividends. the share price remains unchanged overtime. Conversion rate for reinvestment is at $1 per share, meaning without discount. 

Without reinvest:

Year 1: $1.0 + $0.04 = $1.04, shares left = 1

Year 2: $1.04 + $0.04 =$1.08, shares left = 1

Year 3: $1.08+ $0.04 =$1.12, shares left = 1

At year 3 you will have $1.12 of capital, But your shares will still be 1 share.

With reinvest:

Year, capital + dividend

Year 1: $1.0 + $0.0, shares left = 1.04

Year 2: $1.04 + $0, shares left = 1.081

Year 3: $1.081 + $0, shares left = 1.124

At year 3 you will have $1.124 of capital as you would have held 1.124 shares at year 3

The above shows the the compunding effect ifdone annually. mapletree issues dividends evry quarter and also issue at a discount, so it compunds even harder.

Pros of reivest

1. Seeing above, your dividends will earn you more dividend.  

2. You gain more shares. If the share prices goes up higher, your additional shares will increase your capital gains. You also save on broker fees, which you pay when acquiring more shares. 

What are the risks?

1. You are diluting the shares. The more conversion to shares, shares will dilute. the company will need to earn more to maintain the yield. If they could not, shares prices are likely to drop

2. Poorer shares performance will mean your dividends will suffer too. This means if the shareprice dive below your conversion rate, you are effectively not earning the intended yield. 

3. You might receive fractional shares. some might get less than 100 shares and could not sell on the market. 

Why are companies doing this?

With lesser cash outflow, the more cash are conserved to repay debts or for acqusition. With higher interest rates, more companies are likely to adopt this method.

Reinvest or Cash

Reinvest if you are Long term investors and have conviction the shares will remain or be higher in long term, or you would like to own more shares and compound you dividends.

Take cash if you are trading, or have less conviction shares will be higher, or would like to have cash to rebalance your portfolio every now and then.