Dividend Re-investment Plans or DRIPs are a way for a company to distribute profits to shareholders by allowing them to get shares in lieu of cash.
In the normal state of affairs when the economy is in a healthy state it is a good way to keep cash flow in the company to help run the day to day machinations of your company.
Many listed NZX companies have DRIP plans.
Goodman Fielder Ltd [GFF.NZ] has taken that opportunity today by issuing a DRIP offer to its shareholders.
One other company in the Share Investor Portfolio has a DRIP plan and that is Sky City Entertainment. [SKC.NZ] Its DRIP has been running for several years and was instituted at a time when the company found itself with a little cash flow problem due to poor management leading to a couple of awful profit results.
With Goodman Fielder issuing their DRIP intentions I wonder out loud as to whether a cash flow problem might be influencing their decision to make a DRIP available.
Several NZX companies are currently making plans to improve cash flow.
Fletcher Building Ltd [FBU.NZ] signalled the sale and leaseback of their Penrose head office this week and issued millions of dollars of capital notes while Fisher & Paykel Appliances[FPA.NZ] indicated yesterday that they are looking at a capital raising.
Many other companies have issued debt and others are now planning to to get themselves through the current economic crises through prudent and some imprudent means.
Freightways Ltd [FRE.NZ] cut their dividend for example even though their 2009 half-year profit rose slightly.
Goodman's DRIP is a good move to help during these hard times but nevertheless it does leave me with a slightly uneasy feeling.
* Disclosure: I own GFF, SKC, FRE, FBU shares.
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Related Amazon Reading
The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor by Morningstar Inc.
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c Share Investor 2009
