We learn from this Hadith that the Prophet (PBUH) has advised the Muslims to dye the hair of their head and beard with yellow or red colour. They have been forbidden from dying the hair with black colour, as will be explained in the coming Ahadith.
Some religious scholars have regarded this as something desirable. Therefore, it is not necessary to dye the hair of head and beard. But this is certainly better. Since any resemblance with the Jews and Christians is unlawful, not dying the hair will create a resemblance with them. Therefore, in such a situation the colouring will be necessary, otherwise it will be Mustahabb, that is to say desirable.