Question about bank dividends
 

So I just bought some bank stocks for my RRSP. I just have a question about the dividends. There is an option for dividend and share purchase plan where they issue shares instead of cash for dividend. Let's say I have 500 share of a bank and the dividend is 0.50/share. I would normally get $250 cash in dividend payout. But let's say the stock is worth $30. That would allow the purchase of ~8 shares ($240). Will they give out the difference in value in cash?

Also, there are two options

1) Invest cash dividends in new common shares

2.) Receive dividends in form of additional common shares.

Is there really a difference? :confused:

Definetly re-invest in shares again. If there isn't enough to buy any shares or there is left over, it stays in your RSP account as cash. You can transfer that cash out into your chequeing/savings account.

Some shares can be bought in fractions as well depending on the plan. Re-investment is a solid plan especially for bank stocks.

I've never seen that happen in shares. I usually see it in money market funds.

Reinvest the dividends and if you have the option to purchase more shares directly, do it.

Often the rules will be in favor of taking more shares.

Example:

Share value = $15.00
Take cash = 0.05 per share dividend

In this case 300 shares would give you another share. Sometime having it paid in dividends is better such as

Share value = $15.00
Number of current shares to equal one share = 250 or $12.50

If you're dealing in large number you may want to consider which is better as it can add up if you're working with larger lots.

You may also want to take a look at the tax considerations doing this same thing in a non registered account :)

If you choose to receive stock over dividends, do you pay less tax?

Dividends are taxed fully but capital gains are taxed at 50%

I.E. you can choose to receive $20 dividend or $20 of stock.
If you choose to receive the shares, your adjusted cost base will stay the same. When you sell your shares, your proceeds will be higher by $20 but you only have to pay tax on $10.

Does that make sense or do I not know my tax rules?

He's purchasing for RRSPs, so this doesn't matter.

But I think even if you choose to receive your dividends in additional common shares, it will be taxed the same as if it were cash.