A dividend reinvestment plan (DRP, sometimes called DRIP) allows shareholders to automatically reinvest their cash dividends into additional shares of the same company or ETF — rather than receiving the dividend in cash. DRPs are offered by many major ASX-listed companies and some ETFs, and are a powerful tool for compounding investment returns over time.
How a DRP Works
When you enrol in a DRP:
- A company declares a dividend (e.g., $0.80/share)
- Instead of receiving $0.80 in cash, the company uses that amount to buy additional shares for you
- Shares are typically purchased at a discount (0–2.5%) to the prevailing market price
- Your shareholding increases automatically — without brokerage costs
Example: You hold 1,000 CBA shares at $100. CBA declares a $2.00 dividend. Under DRP:
- Dividend amount: $2,000
- DRP price (say 1.5% discount): $98.50/share
- Shares issued: $2,000 ÷ $98.50 = ~20.3 shares
- New holding: 1,020.3 shares (fractional shares may be handled as a small cash payment)
Which Companies and ETFs Offer DRPs?
Most major ASX companies offer DRPs, including:
- The Big Four banks: CommBank, ANZ, Westpac, NAB
- Major miners: BHP, Rio Tinto
- Large caps: Wesfarmers, Woolworths, Telstra
- Listed investment companies (LICs): AFIC, ARG, WHF
ETFs and DRPs: Most ETFs (e.g., VAS, VGS, VDHG) do not offer direct DRPs — they pay cash distributions. However, many brokers offer a broker DRP (purchasing additional units automatically with dividend cash at market price, sometimes with brokerage waived).
Tax Treatment of Reinvested Dividends
This is the most important point about DRPs: reinvested dividends are still taxed as income in the year received, even though you didn’t receive cash.
When you receive 20.3 new shares via DRP instead of $2,000 cash:
- You still owe income tax on the $2,000 dividend (including grossed-up for franking credits)
- The 20.3 shares have a cost base equal to the DRP price ($98.50 × 20.3 = $2,000)
- When you eventually sell those shares, capital gains tax applies from the DRP price
Record keeping is critical: Each DRP participation creates a new CGT parcel with its own cost base and date. Over years of DRP participation, you will have dozens of parcels with different cost bases. Good records (or a tax tracking tool like Sharesight) are essential.
DRP vs Cash Dividends — Which Is Better?
| DRP | Cash dividends | |
|---|---|---|
| Compounding | Automatic — shares increase without action | Manual — must actively reinvest |
| Brokerage | Usually zero (company issues new shares) | Brokerage cost to reinvest |
| DRP discount | Often 1–2.5% below market price | N/A |
| Tax | Same — dividends taxed regardless | Same |
| Cash flow | No cash in hand | Cash available for spending or other investments |
| Flexibility | Locked to the same company | Can direct cash anywhere |
| Record keeping | Complex (many CGT parcels) | Simpler if investing in single parcels |
DRPs are most valuable during accumulation when you don’t need cash flow and benefit from automatic compounding at zero brokerage. In retirement (where you need income), cash dividends are typically preferred.
How to Enrol in a DRP
- Log into the share registry (Computershare, Link Market Services, etc.) for the company
- Find the DRP election section
- Elect “full participation” or “partial participation” (some registries allow you to reinvest a portion)
- The election typically applies from the next dividend — check the DRP election deadline for each dividend
DRPs Inside Super
If your super fund holds individual ASX shares (common in SMSFs), DRPs may be available. The fund’s tax treatment applies — at 15% accumulation or 0% pension phase — to the reinvested dividend income. The CGT complexity remains, but at lower tax rates.
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- Building a Passive Income Portfolio Australia
- Income Investing hub
Frequently Asked Questions
Are DRPs worth it in Australia? DRPs are most valuable during the accumulation phase — you compound your investment automatically, often at a discount and without brokerage. The complexity is the CGT record-keeping. In retirement, cash dividends are usually preferable since you need income to spend.
Do I pay tax on a DRP in Australia? Yes — dividends are taxed as income in the year received, whether you reinvest them or not. The reinvested amount becomes your cost base for CGT purposes when you eventually sell those additional shares.
Can I turn off a DRP at any time? Yes — you can change your DRP election (to opt out and receive cash) at any time via the share registry website, subject to the election deadline for the upcoming dividend.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.