Scrip Dividend - how to treat them in valuation?

So a company that's supposed to pay out cash dividend to shareholders, now issue shares instead

outstanding shares have increased - diluting current owners who do not buy back in

this kinda confuse me:
the company in a way issues shares for free in respect of the cash dividends to be issued, by issuing shares instead, the cash stays with the company

so does that mean for companies that have this policy, those shareholders who opt to receive cash lose out in the long run?
since his holdings have been diluted continually?

Thanks for the sharing masters

(19-02-2013, 01:38 PM)ikur1 Wrote: So a company that's supposed to pay out cash dividend to shareholders, now issue shares instead

outstanding shares have increased - diluting current owners who do not buy back in

this kinda confuse me:
the company in a way issues shares for free in respect of the cash dividends to be issued, by issuing shares instead, the cash stays with the company

so does that mean for companies that have this policy, those shareholders who opt to receive cash lose out in the long run?
since his holdings have been diluted continually?

Thanks for the sharing masters

I usually opt to receive scrip dividend instead of cash. The reason being that they always come with discount. And it save some much commission cost if I were to buy from the market. If I am right, the company concerned usually need to buy from the market and distribute to shareholders who choose to receive scrip dividend. So there is actually no dilution on NAV for those who receive cash.

Can some industry expert comment?

(19-02-2013, 04:47 PM)zhangwuji Wrote:

(19-02-2013, 01:38 PM)ikur1 Wrote: So a company that's supposed to pay out cash dividend to shareholders, now issue shares instead

outstanding shares have increased - diluting current owners who do not buy back in

this kinda confuse me:
the company in a way issues shares for free in respect of the cash dividends to be issued, by issuing shares instead, the cash stays with the company

so does that mean for companies that have this policy, those shareholders who opt to receive cash lose out in the long run?
since his holdings have been diluted continually?

Thanks for the sharing masters

I usually opt to receive scrip dividend instead of cash. The reason being that they always come with discount. And it save some much commission cost if I were to buy from the market. If I am right, the company concerned usually need to buy from the market and distribute to shareholders who choose to receive scrip dividend. So there is actually no dilution on NAV for those who receive cash.

Can some industry expert comment?

Scrip dividend usually supported by issued new shares, instead of acquired from open market. In short, dilution is there if opt for cash instead of scrip.

(19-02-2013, 01:38 PM)ikur1 Wrote: So a company that's supposed to pay out cash dividend to shareholders, now issue shares instead

outstanding shares have increased - diluting current owners who do not buy ba

this kinda confuse me:
the company in a way issues shares for free in respect of the cash dividends to be issued, by issuing shares instead, the cash stays with the company

so does that mean for companies that have this policy, those shareholders who opt to receive cash lose out in the long run?
since his holdings have been diluted continually?

Thanks for the sharing masters

It really depends at the end of the day what you want? cash or shares?
for income investors cash is favored as they need money for consumables. if you do not need the cash, its better to collect share script.

(19-02-2013, 05:12 PM)CityFarmer Wrote:

(19-02-2013, 04:47 PM)zhangwuji Wrote:

(19-02-2013, 01:38 PM)ikur1 Wrote: So a company that's supposed to pay out cash dividend to shareholders, now issue shares instead

outstanding shares have increased - diluting current owners who do not buy back in

this kinda confuse me:
the company in a way issues shares for free in respect of the cash dividends to be issued, by issuing shares instead, the cash stays with the company

so does that mean for companies that have this policy, those shareholders who opt to receive cash lose out in the long run?
since his holdings have been diluted continually?

Thanks for the sharing masters

I usually opt to receive scrip dividend instead of cash. The reason being that they always come with discount. And it save some much commission cost if I were to buy from the market. If I am right, the company concerned usually need to buy from the market and distribute to shareholders who choose to receive scrip dividend. So there is actually no dilution on NAV for those who receive cash.

Can some industry expert comment?

Scrip dividend usually supported by issued new shares, instead of acquired from open market. In short, dilution is there if opt for cash instead of scrip.

I usually choose to receive cash. Getting shares as dividends is good too, if you believe the shares will continue to rise in value.

There will be dilution of share value per share as long as more shares are issued. I am okay with that, as long as annual cash dividend is not reduced as a result.

Most of us are retail investors. We don't own enough shares to mount a takeover or to fight for a seat on the board of directors. Dilution of ownership not a big issue, since most investors are not big shareholders in the first place.

Taking cash or scrip dividend - no right or wrong. Depends on your financial objectives.

(19-02-2013, 05:12 PM)CityFarmer Wrote:

(19-02-2013, 04:47 PM)zhangwuji Wrote:

(19-02-2013, 01:38 PM)ikur1 Wrote: So a company that's supposed to pay out cash dividend to shareholders, now issue shares instead

outstanding shares have increased - diluting current owners who do not buy back in

this kinda confuse me:
the company in a way issues shares for free in respect of the cash dividends to be issued, by issuing shares instead, the cash stays with the company

so does that mean for companies that have this policy, those shareholders who opt to receive cash lose out in the long run?
since his holdings have been diluted continually?

Thanks for the sharing masters

I usually opt to receive scrip dividend instead of cash. The reason being that they always come with discount. And it save some much commission cost if I were to buy from the market. If I am right, the company concerned usually need to buy from the market and distribute to shareholders who choose to receive scrip dividend. So there is actually no dilution on NAV for those who receive cash.

Can some industry expert comment?

Scrip dividend usually supported by issued new shares, instead of acquired from open market. In short, dilution is there if opt for cash instead of scrip.

It is similar to getting cash dividends and then deciding whether to reinvest in the company through new placement shares. If the placement price overvalues the company, then should just take the cash and reinvest elsewhere. There would be no real dilution on a per share basis in this case.

2 reasons why it's better to accept scripts than cash dividends, if the company is in good hands,

1st Main Reason : Dilutions to holdings due to issue of new shares via scripts.
2nd Main Reason : Scripts are valued at 10% discount to last market price.

My personal view is that the issuing of scrip dividend is not done with the benefits to minority shareholders in mind. Let's have a thought experiment:

Take the extreme case in which every shareholder opt for scrip. Everyone will end up with the same percentage ownership in the company as before (save for fractional entitlement). Cash is retained in company. So company pacified shareholders' demand for dividend without really changing anything. But something has changed: shareholders will end up with odd lots! While it isn't a problem for the majority shareholder, transaction cost will be higher for those who want to round up/down/exit their holdings.

Take the other extreme in which only the majority shareholder opts for scrip, while others opt for cash. In this case, the majority shareholder raises his/her stake in the company at the expense of the other shareholders. It's equivalent to paying everyone a cash dividend and then doing a private placement to the majority shareholder at a discount.

Reality will be somewhere between these extremities. So those who opt for scrip raise their percentage ownership at the expense of those who opt for cash, the extend of which increases with the discount in scrip price, and with the majority shareholder being the biggest beneficiary. Again the issue of odd lots arises for those minorities who have opted for "discounted" scrip.

If companies are altruistic about rewarding shareholders, I'd prefer that they do it via cash dividends, and let those who wants to raise their stakes in the company do so via share purchase from the market using those dividends.

I used to own a utility stock called SP ausnet
bought it at around 90c and at that time it was paying a yield of 10% and the company had a gearing of 60%+

usually when companies issue scrip is because they need the cash either to expand the business or pay down debt
for me I opted for cash for 2 years as the stock price already when above $1+

normally I look at my purchase price and my valuation of the company before deciding to take the scrip or not
if I am able to get extra shares below my initial purchase price or if I still feel the company is undervalued, I will definitely go for the scrip.

for bank shares, if you have like 10 lots or more.. generally u wanna take scrip
cause its 5 or 10 % discount from the recently traded average price
once you receive the new shares, you can sell it in open market
the commission paid may eat 1% away but overall you still get more than opt-ing for cash

however got risk la, if after u get scrip liao market turn bear.. then maybe get less haha