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MIKE THEXTON explains various alternatives to a cash dividend
KEY POINTS
- The nature of scrip dividends and their capital gains tax treatment.
- The difference between a scrip and dividend reinvestment plan.
- Samples of the approaches adopted by Standard Life Rolls-Royce and Santander.
- Calculating the capital distribution.
The annual dividend paid by a company is a basic indication that the directors are doing something useful with the shareholders’ money. Of course it’s no guarantee as any student of Ponzi schemes understands – but the dividend provides the investor with the means to eat while waiting for a capital gain.
With that in mind a scrip dividend is a peculiar thing; the directors ask the shareholders: ‘instead of cash this year wouldn’t you like some more shares?’
A cynic might observe that the directors...
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