InvestSMART

Do you participate in dividend reinvestment plans? How are my dividends reinvested?

Question

Do you participate in dividend reinvestment plans? How are my dividends reinvested?

Answer

Even though we hold shares directly in the name of the client, as you would if you bought them yourself, we do not participate in dividend reinvestment plans. The cash from the dividend comes into the cash component of the portfolio. The cash is then redeployed in the portfolio when the cash weighting exceeds the model cash weighting. The next question people often ask is “when does that happen”. Our portfolio managers have a model made up of the holdings and percentages for each portfolio. Each portfolio has its own cash percentage too. For example, the InvestSMART Balanced Portfolio has a higher cash weighting then the InvestSMART High Growth Portfolio.

When dividends are received or when a client adds funds to their portfolio this increases the cash in their portfolio. Depending on the size of their portfolio this may increase the cash weighting above the weighting of the model portfolio. This means we will need to reallocate some cash to the underweight positions in the portfolio to bring it back into line with the model. If the dividend is a small amount it may not increase the weight of cash sufficiently to warrant a rebalance right away. As more dividends are paid the excess cash will build and then be redeployed.

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Mitch Datson
Mitch Datson
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