Banks sweeten their dividend reinvestment plans
by investor on 27/02/09 at 2:55 pm
The idea of investing in Canadian bank shares may be too nerve-wracking for most investors to contemplate as the financial crisis drags on but the capital hungry sector is making it difficult to stay away.
Thursday, the Royal Bank of Canada sweetened its dividend reinvestment plan [DRIP] by offering a 3% discount for common and preferred shareholders wishing to reinvest their dividends into more RBC stock. The last time it offered a DRIP discount program was in 1992.
In Toronto, all banks made impressive gains including a 6% spike for RBC as better-than-expected earnings pushed the S&P/TSX composite index up 3% for its best gain of the year.
RBC’s change to its DRIP program follows an earlier one by the Bank of Montreal, which offers a 2% discount on its own share purchase plan for shareholders of record on February 6th. BMO soared 10% on Thursday.
“The banks want to raise capital and getting some of their dividends back as additional equity is very appealing to them,” says T. E. Wealth’s Warren Baldwin.
But discounted DRIP programs are also a win for investors. With banks yielding a mouth-watering 6.27% to 9.72% these days, what’s not to like if you’re an income-oriented investor with a long time horizon?
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