question re. dividend reinvestments, page-2

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    The company can do it both ways, depends on their ideas of capital management.

    Recently at least one bank has been conducting on-market purchases of shares to satisfy DRP requirements but clearly this money does not end up back with the bank. When a drp is satisfied by on-market purchases then the company spends the money and it goes to whoever sold them their shares.

    The company only gets to keep the money when it issues new shares. This is the traditional way that DRP's were conducted by most companies because it left the money in the company as a contribution to totsal capital and was in effect like mini-capital raisings each six months.

    This system went out of favour with many boards over the last few years because a/ they found they had no use for the additional capital and it in effect acted to reduce the relative performance figures of the company in terms of return on capital if they couldn't employ the additional capital for similiar or greater returns than they were already achieving and b/ the constant issuing of shares was dilutative to the total share base - especially to those who didn't take part in the drp.
 
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