How to have your ASX 200 dividend cake and eat it too

When you buy an ASX dividend share, many investors are offered a choice. Take your dividends as cash, or participate in a dividend reinvestment plan (DRP). Of course, not all ASX shares offer DRPs to investors.

But for those who do, investors have a choice between receiving their dividend in cash, or instead getting additional shares in the company to the value of the dividend payment.

Why would some investors choose the DRP path? Well, DRPs usually offer these additional shares without any brokerage costs or other fees. Thus, the dividends are ‘rolled back’ into the investor’s portfolio seamlessly, ensuring an even greater dividend payment next time around (assuming the company at least keeps its dividend payments steady).

Yes, you still have to pay tax on your dividend, even if you decide to reinvest your shares. And yes, you still get the franking credits as well.

Many investors enjoy this hands-off approach. It can fully harness the wonderful power of compound interest over time, and ensures there are no hard choices about where to invest one’s dividends.

But then again, there’s no cash payment. And having the flexibility and liquidity that this passive income can provide is also a wonderful thing. So can investors have their cake and eat it too?

Well, in many cases, yes.

To DRP or not to DRP your ASX dividends? Why not both!

If a company offers a DRP, chances are it will also offer what is known as a partial DRP. This means you can indeed have your cake and eat it too.

A partial DRP allows investors to allocate some of a dividend payment to the DRP, while receiving the remainder as a cash payment. For example, you may decide to have half of your dividend go towards new shares, and the other half come your way as a cash payment.

So which ASX shares offer partial DRPs? Well, there are many.

For one, all four of the major ASX bank shares offer both full DRPs and partial DRPs. As do Telstra Group Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW), and BHP Group Ltd (ASX: BHP). Along with CSL Ltd (ASX: CSL), Coles Group Ltd (ASX: COL), Woodside Energy Group Ltd (ASX: WDS), and Wesfarmers Ltd (ASX: WES).

In fact, it’s rather hard to find a large ASX dividend share that doesn’t offer a DRP with full or partial participation. Some notable exceptions include Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), and Goodman Group (ASX: GMG). Not to mention any ASX share that doesn’t pay a dividend, of course.

At the end of the day, receiving dividends as cash or as additional shares as part of a DRP is a personal choice. But it’s sure nice to have the option.

The post How to have your ASX 200 dividend cake and eat it too appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in CSL Ltd., Telstra Corporation Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, CSL Ltd., and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks, COLESGROUP DEF SET, Telstra Corporation Limited, Washington H. Soul Pattinson and Company Limited, and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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