RSO has a drip plan and I'm wondering what the advantages and disadvantages would be for the company and the long term stock holders, if RSO offerered a 2 to 5% discount on the purchace of new shares thru the company's existing drip plan instead of taking the cash dividend.
It seems to me the longs would be even more loyal and it would encourage more longer term investors.
It would cost the company what ever the discount would end up being. But at the same time keep more cash within the company for investment purposes.
I know it costs money for a company to do secondary offerings, could there be enough interest in the stock thru the drip they would not have to do as many secondary offering for further invest cash?
If memory serves, RSO used to have a discount associated with its DRIP, but does not at the current time. The DRIP plan gives the company the flexibility to offer or cease discounts from time to time as management sees fit.
When you do an underwritten secondary, you end up paying something like 7% in fees to the investment bankers, lawyers and auditors, so a 5% discount on DRIP shares is both a benefit to your investors and a cost savings to a company that wants to issue new shares.
However, at the current time, there is no carrot as part of RSO's DRIP.
DRIP stock premiums are based on a percentage of your dividend payment, not the share price. So, if RSO offered a 2% premium to participants in their DRIP program and you are receiving a $1,000 dividend for the quarter, the company would effectively give you $1,020 worth of stock. Has nothing to do with PPS.