DRIP Treatment

[Pheidippides]

Just a query as to how other Fools treat DRIP's

Historically, I have kept my portfolio as a "live" animal as the portfolio has historically been very static.

However, after some recent (2016) investments I am becoming more interested in the performance of my selections as I hold Glaxo and Lloyds and both are DRIPping in my Youinvest SIPP.

In share price terms my live net worth takes a hit when the shares go "Ex-Div" and then my "cash" gets a fillip when DivPayDate arrives.

If I was investing new cash then I would put the base cost as the acquisition cost. However, as this is a div then my acquisition cost is effectively zero.

What do wise Fools do?

Regards

Pheid

[doug2500]

When analyzing individual shares I would ignore all the drips and do an XIRR on the start value of the holding to the end value. To be technically correct for each drip you would show it as -£X leaving then +£X being reinvested on the same day, but they cancel each other out.

I say would rather than do because I only have funds that reinvest the divi, I take the share divi's in cash.

Apologies if this is not what you're after, I wasn't 100% sure what you're trying to achieve.

[tjh290633]

Just a query as to how other Fools treat DRIP's

Historically, I have kept my portfolio as a "live" animal as the portfolio has historically been very static.

However, after some recent (2016) investments I am becoming more interested in the performance of my selections as I hold Glaxo and Lloyds and both are DRIPping in my Youinvest SIPP.

In share price terms my live net worth takes a hit when the shares go "Ex-Div" and then my "cash" gets a fillip when DivPayDate arrives.

If I was investing new cash then I would put the base cost as the acquisition cost. However, as this is a div then my acquisition cost is effectively zero.

What do wise Fools do?

Regards

Pheid

I do not indulge in DRIPs these days, as I prefer to reinvest my accumulated dividends in what I consider to be the best share(s) at the time.

The cost of acquisition of your new shares is not zero and, were you not investing in a SIPP, you would find that the dividends count as taxable income. I calculate the performance of my portfolio and of the individual shares by using the XIRR function of Excel. You are correct that, if you are not adding further to your capital, then the dividends which you reinvest are rolled up in the holding value, and you can use XIRR on the original cost and the present value of the holding, to give you a figure for Total Return. If you were reinvesting them elsewhere, or withdrawing them as cash, then you need to take a different approach by taking each dividend payment into account, as well as the current holding value.

For the portfolio as a whole, I do my calculations by two methods, analagous with a unit fund. The first is the accumulation fund approach, where you consider each input of capital as buying accumulation units in which the dividends are rolled up, and so do not need to be taken into account. If you withdraw cash, you consider yourself to have sold units at the going price at the time of the sale. The second is the income unit model, where reinvested dividends buy additional income units. If you withdraw cash you can do it by withdrawing accumulated dividends, selling units, or a combination of both.

The income unit method has the advantage that you can compare the progress of the price/value of your unit against whichever parameter you wish (such as the FTSE100 index), and similarly the dividend per unit can be compared with the RPI or some other indication of inflation, be it Mars bars or the price of a pint of beer.

TJH