Insurance Australia Group Ltd (ASX: IAG) shares are currently trading with a 4.13% dividend yield and that can mean more than extra pocket change for willing investors.
IAG offers its shareholders the option to participate in a dividend reinvestment plan. Let's take a look at what that means for those who own stock in the S&P/ASX 200 Index (ASX: XJO) insurer.
At the time of writing, the IAG share price is $4.60. The company has handed out 19 cents of dividends over the last 12 months.
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All the details on IAG's dividend reinvestment plan
Own IAG shares? If so, you can up your holding in the company for free – sort of.
The company operates a dividend reinvestment plan, allowing shareholders to forego their cash dividends in return for more shares.
Any new shares handed to investors under the dividend reinvestment plan will be free of broker or transaction costs.
How many shares per dividend that participating shareholders will receive will vary. That variation is based on a few factors – mainly, the value of a particular dividend and the trading price of IAG shares.
The company will decide what each share handed out under the dividend reinvestment plan is worth based on the average market price of IAG shares over at least 5 trading days.
For instance, IAG's most recent dividend was worth 6 cents. Meanwhile, the company's directors determined the dividend reinvestment plan's price to be approximately $4.84.
So, an investor participating in the plan with a holding of roughly 80 shares would receive a single new share.
Any remaining value – that is, a portion of a payout that doesn't make up the value of full share – is then carried forward to the next dividend payout.
IAG investors can also choose to commit only a portion of their shares to the plan, thus receiving both a cash dividend and additional shares.
Sadly for some, only shareholders who live in Australia or New Zealand can participate in the plan. Though, the company notes there are some exceptions to that rule.
