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Hello Sir, pleasee explain this advantage
A small scrip dividend issue will not dilute the share price significantly. However, if cash is not
offered as an alternative, empirical evidence suggests that the share price will tend to fall.And also this disadvantage, I don’t understand, the whole point of offering scrip dividends is because shareholders are likely to take them up since shares value more than the cash, so how does the following disadvantage arise..
”Assuming that dividend per share is maintained or increased, the total cash paid as a dividend will increase. ”
Can you please help me understand this..
If more shares are issued then the worth of the company is spread over more shares which will reduce the MV per share. However if it is a small scrip dividend then they will not be issuing many new shoes and so it is less likely to make much difference.
Some shareholders would prefer to have had a cash dividend because they need the cash. If there is no cash alternative then they might have to sell shares in order to get cash. If many shareholders start selling shares then the market value of the shares is likely to fall.
For your second post, on its own the statement seems wrong, but I would need to see the whole context rather than just an isolated statement.
Thank you soooo muchhhh for such clear cut explanation for the first point…
And for the second one, I found this in BPP study text, Dividend policy chapter and the statement is written on its own as a single point…
Is this correct if I say for this disadvantage that:
maybe the directors were going to reduce dividend payments (but they didn’t just to not send out negative signals) and it’s not an ”enhanced” scrip dividend that’s being offered so since the cash dividend payments are likely to be taken up by shareholders overall on the whole total cash paid as dividend will increase?
as opposed to if they just reduced the dividends instead of offering scrip dividend to not disappoint shareholders?I now realise what the second point you mentioned means.
It is referring to dividends in the future. If there is a scrip dividend this year then there will be more shares in issue. So in future, if the dividend per share stays the same (or increases) then the total dividend to be paid will increase because of there being more shares.
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