I have some doubts relating to the validity of the following advantage of scrip dividends as stated in the Kaplan Study Text.
“Shareholders may get a tax advantage if dividends in the form of shares rather than cash.”
Isn’t script dividends treated as taxable income as a cash dividend in the UK? If so, should the shareholder be indifferent as to whether or not cash dividends were paid? I’m confused here.
Also, is this disadvantage of a scrip dividend correct?
Lets say the shareholder takes the cash dividend instead. As such, his shareholding will remain the same whilst the number of ordinary shares in the company would have increased from those other shareholders which accepted the scrip dividend. As a result, this shareholders ownership in the company would have become diluted due to the increased # of ordinary shares. Additionally, that said shareholder would also receive less dividends in the future on his shareholding due to the dividend per share reducing from the additional ordinary shares.
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