Re-invested Dividend (Scrip Dividend)


#1

So far, there are 2 ways to record the transaction.

First way - remove dividend and then add the new shares at zero cost.

Second way - do nothing about the received dividend and then add the new shares at actual cost (ie the dividend amount for the however many number of shares)

Which way is better? Or, why is one way preferred over the other?


How should I account for scrip dividends, bonus shares, rights issues, etc?
How to handle Scrip dividends (or re-invested dividends) properly?
#2

I would personally vote for second way.

Reason A: It is literally what happened. You did receive dividends for the stock and used that to buy shares. (Although it was made easy by the company by making it an option to choose cash or shares and often with discount to encourage people to choose shares).

Reason B: This way, the dividend yield for the stock would not be distorted. Likewise, the cost for getting the shares will not be distorted.


#3

I vote for Evan’s reply.

We had this discussion before.