In light of recent scrip dividend schemes offered by the three local banks, I’d like to quickly share my thoughts and experience on deciding whether to take cash or scrip dividends.
Disclaimer: I am vested in DBS and OCBC.
There are pros and cons to opting for cash or scrip dividends and sometimes the decision is not so straightforward. Here are some factors that guide my decision when given the option to choose between both.
1. Scrip offer price
Scrip dividends are usually offered at a discount to the current market price which makes it a good opportunity to accumulate more shares at no commission fees. However, if the offer price is higher then the market price, then I would prefer to take the cash and purchase the shares off the market at a lower price instead.
2. Purpose of holding
I buy stocks for different reasons and choose companies to invest in for growth and for income. If the stock is meant to be an income stock, I would be inclined to take cash as that is what I have it in my portfolio for. On the other hand, if the stock is meant to be a growth stock, I would opt for scrip dividends to reinvest the cash dividends that I would otherwise be receiving to continue accumulating my holding size.
3. Odd lots
For some reason, people are affected by holding onto odd lots and prefer to opt for cash to prevent that from happening. Granted, the process and fees to sell odd lots is different (and more expensive?) but this is not a compelling enough reason for me to choose cash over scrip.
4. Share dilution
Another concern is the dilution of shares if scrip dividend is not taken up. Share dilution might affect the share price or EPS. However, I am unsure of the extent of the dilution for the average retail investor who might not have substantial ownership of the company anyway. In any case, this is not a major concern affecting my decision.
The decision for DBS: Cash
DBS is offering scrip dividends at $21.04 which is about the same as its current share price and therefore not exactly enticing. While I try to be farsighted and consider $21.04 to still be fair value for DBS and worth accumulating, it is hard not to feel like it is a wasted opportunity to increase my holding size. Furthermore, the number of shares I am entitled to is rounded down which makes me feel somewhat shortchanged. For these reasons, I am opting for cash for DBS.
The decision for OCBC: Scrip
I have been opting for scrip dividends for OCBC for awhile now and it is no different this time. OCBC has been able to offer a rather good discount for their scrip dividends which justifies my decision. They are offering scrip dividends at $7.81 this time which is an approximately 10% discount off its current share price and pretty close to its low in March 2020. On another note, receiving scrip dividends also allows me to average down my current holding price which is much appreciated!
Have you had to decide between cash or scrip dividends in your investment journey? Which do you usually opt for and why? Feel free to share in the comments section below!