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ASX DIVIDEND INVESTING EXPLAINED // FOR BEGINNERS (2021 Update) 馃 - YouTube
Channel: David Quan
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- Hey, what is up, everyone?
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In this video, I wanna talk to you
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about the basics of dividend investing.
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And I wanna explain to
you all the different
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concepts of dividend investing.
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This video is not a strategy video per se,
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I just wanna make sure that if you're
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about to get into dividend investing,
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that you're absolutely crystal clear,
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knowing what you're
gonna get yourself into,
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and what all the different little jargons
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and all those technical
terms actually mean.
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If this is your first time
here, my name is David.
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I do videos on personal
finance and entrepreneurship.
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I remember the first time when I was just
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about to get into dividend investing.
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I didn't know what dividend yields meant,
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I didn't know what payout ratios meant,
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I don't even know what the difference
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is between ex-dividend
date and record date,
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not to mention what the heck are DRIP.
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(sad trombone music)
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Now dividend investing's
such a hot topic right now,
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and I'm hoping that at
the end of this video,
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you know all of the basics
around dividend investing.
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Now before we get started,
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I recorded this video on
the day of Chinese New Year,
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which means I'm spending a lot of time
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with my Asian parents.
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And if you can smash that like button,
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I can at least tell
them that doing YouTube
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is probably better than
being an accountant.
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(crickets chirping)
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Without further ado, (laughs)
let's just get started.
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(screen whooshes)
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I know, my eye bags are crazy.
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It probably just means that
I haven't slept for days
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because I had to create
YouTube videos for you guys.
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And the coffee is to help me stay awake
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and not fall asleep during this video.
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Now this brings us to the first basic,
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which is the types of dividends.
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Now the three most
common types of dividends
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are cash dividends, stock dividends,
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and also special one-time dividends.
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Now let me explain each.
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Now cash dividends are probably
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the most common kind of dividends,
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and it just means that the
dividend is paid in cash.
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Stock dividends, also very similar,
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in the sense that instead
of getting it paid in cash,
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you're getting paid in stock.
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Now the only thing to pay
attention to when it comes
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to stock dividends is
that when you're paid
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in stock dividends instead of cash,
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the total pool of stocks
available have increased,
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which means that the
value of your individual
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shares are diluted, and therefore,
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it's worth less than
what they were before.
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And then the last one,
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which is a special one-time dividend,
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usually happens if a company is having
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a fantastic quarter or half-yearly.
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Now, due to that exceptional result,
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the company have an
option to choose to pay
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some of those earnings or net profit
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in the form of a special
one-time dividend.
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There are more types of dividends,
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but those three are the most
common types of dividends
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that you need to worry about.
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The rest is not very common.
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They still happen every so often.
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But if you're curious, just let me know
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in the comments below and type dividends,
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and if there's enough demand,
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I'll create a separate videos for that.
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Okay, now that we've got the types
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of dividends out of the way,
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one of the more common
questions that's asked
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is the different dividend dates.
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Now there are four main dates
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when it comes to dividend investing.
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There is the declaration date,
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there is the ex-dividend
date, there is a record date,
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and there's also the payment date.
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Now the declaration date is very simple.
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It's just an announcement from the company
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in terms of how much
dividends they're paying,
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what are the ex-dividend dates,
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what are the record dates, and
what are the payment dates.
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Basically just a full
announcement of that.
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Now, the second date is ex-dividend date.
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And that date is usually when
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you need to purchase the
shares before that date
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to be entitled to dividends.
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Now the third date is record date.
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The record date is usually a
day after the ex-dividend date,
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and that's when the company
checks on their record
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who is entitled to dividends.
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And I'll explain the difference
between ex-dividend date
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and record date in just a second.
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The last one is payment date,
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and that's usually the
date when the company
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(cash register dings)
pays you with your dividends.
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There is a distinction
between ex-dividend date
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and record date only because
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when you purchase shares
from the stock market,
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there's usually a settlement
period between one to two days
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before you become an official owner.
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That is why there's a difference
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between ex-dividend date and record date.
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But the most important
thing that you need to know
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is that you wanna purchase the shares
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before the ex-dividend date to make sure
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that when the company
looks through its records,
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you're gonna be an official shareholder
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and you're going to be
entitled to dividends.
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Now let me put dividend dates
into a more practical example.
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Let's take a look at Coca Cola Amatil
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in the Australian Stock Exchange.
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On the 22nd of August, 2019,
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they announced that they will distribute
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a dividend of 25 cents
to their shareholders.
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Now within that announcement,
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they also stated that the ex-dividend date
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is on the 27th of August
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and the record date is
on the 28th of August,
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and the payment date is on
the 9th of October, 2019.
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That means for you to be entitled
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to the Coca Cola dividends,
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you need to make sure that you purchase
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the shares before the 27th of August.
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Another really fundamental basic
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when it comes to dividend
investing is dividend yields.
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Now yields are usually
shown as a percentage
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to the amount of dividends
a company has paid
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for the entire year
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divided by the current share price.
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Now let me put that into
a more practical example.
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If a company for the entire
year has paid $1 dividend,
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and their current share price is $20,
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$1 divided by 20 would mean
that the dividend yield is 5%.
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So if the dividend yield is 5%
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and you have $1 million in your portfolio,
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I don't really know why
you're watching this video.
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But if you have $1 million in
the beginning of that year,
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at the end of that year
you have $1,050,000.
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And also, if you could give me some tips
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on how I can become wealthy,
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that would be really
helpful, too. (guffaws)
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Let me give a more practical example.
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If the dividend yield is 5%,
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and if you have $100 in your portfolio
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at the beginning of that
year, at the end of that year,
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that portfolio will be worth $105.
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Now another basic when
it comes to dividend
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investing are dividend payout ratios.
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And dividend payout ratios are usually
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just a measurement of how much,
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as a percentage of the
company's net income,
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is paid to shareholders
in the form of dividends.
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And that formula is usually the amount
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of dividends paid divided by net income.
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Growing companies tend to
have a lower payout ratio
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because a lot of their
net income is reinvested
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into the company that
they can grow faster.
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And in the future when
they become more mature,
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then they'll think about
distributing more dividends.
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Now for a more mature company
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like the big four banks in Australia,
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you'll find that the payout
ratio is a lot higher
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because they're more established.
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Now the one thing to pay
attention to when it comes
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to payout ratios is that if at any point,
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the company's payout ratio is above 100%,
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you need to be very, very careful
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about what you're investing into,
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because the company is paying out more
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in dividends than its
current net earnings,
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which is a huge sign that
the company is in trouble
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and they're using these dividends,
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these massive dividends as
a way to keep the investors
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on board and not selling the stock.
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Now one of the other
really important things
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when it comes to dividend investing
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is dividend reinvestment plan.
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Now when it comes to
dividend reinvestment plan,
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which also stands for
DRIP, it just means that
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when they distribute
cash dividends to you,
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instead of paying you as cash dividends,
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the company is actually
using that cash dividend
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to purchase additional
shares that's equivalent
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to the amount of dividends owed to you.
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Now because the company is using
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the cash dividends to
purchase those shares,
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it's actually bypassing
the transaction fees,
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meaning you get additional
shares transaction-fee-free.
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And also, because the
company don't have to pay you
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in cash, like hard cash,
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that a lot of the shares that's purchased
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is at a discount.
(bell dings)
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This is one of the main attractions
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of dividend reinvestment plans.
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And one of the things that's
really worthwhile noting
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is that because the
company have distributed
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cash dividends to you and then used
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that cash dividends to purchase shares,
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the cash is counted as
additional income for you,
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which means that you
have to pay tax on that.
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Now, another form of
dividend reinvestment plan
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is dividend substitution share plan.
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Now slightly different between dividend
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reinvestment plan because
instead of declaring
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cash dividends and distributing the cash
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dividends to you, that never occurs.
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So instead of distributing cash to you,
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they directly just distribute
stock dividends to you.
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So that means that the
ownership of your stocks
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have gone up, but on your tax return,
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you haven't really received that income,
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which means that you're not paying tax,
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it's commission-free,
but the only downside
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to that is, moving on to the future,
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you have to pay capital gains tax
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when you decide to sell those shares.
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Thank you for watching this
video all the way to the end.
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I'm really hoping that at this point,
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you have a really good understanding
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of the basics of dividend investing.
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I know I haven't really talked
about dividend investing
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strategies yet or even an
update on my portfolio,
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but I'm hoping to do
that in the near future
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in the next couple of videos.
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If you really enjoyed this video,
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make sure you destroy that like button,
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so that I can really show
off to my Asian parents
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that doing YouTube is
probably a pretty good thing!
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And if you want to see
more content like this,
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make sure you subscribe to my
channel and click on the bell
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so that you'll be the first to know
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when I release more new content like this.
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And until next time, thank you so much,
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and I'll see you soon.
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