Automatic Dividend re-investment

EdGasket

Economic wrote: »

No, the higher value of the company will only benefit the shareholders who take the scrip dividend as they will have a larger share of the company.

Thats not correct; every share in the company will benefit from any retained money including those held by people who took the cash dividend.

System

EdGasket wrote: »

Thats not correct; every share in the company will benefit from any retained money including those held by people who took the cash dividend.

Perhaps a simple example will help. Suppose a company has assets worth £110 (and a market value of £110 assuming that the market is efficient) and has 10 shareholders each with 10 shares so the share price is £1.1. If it pays a dividend of 10p per share then the value of the company is now £100 so the ex-dividend share price will be £1. If instead half of the shareholders take a scrip dividend then they will each receive 1 new share and the company will be worth £105 and the share price will be £1 (£105/105 shares). The shareholders who take the dividend do NOT benefit from the retained money as their shareholdings are diluted. The shareholders who take the scrip dividend have 11 shares worth £11 and the shareholders who take the dividend have 10 shares worth £10 and a dividend of £1.

EdGasket

Yeah I see how you are calculating it. Quite often though the scrip divs don't seem to bring the share price down by as much as the equivalent cash value; usually other things have a bigger effect on the share price but technically you are correct.

Glen_Clark

moneyfoolish wrote: »

Note to self: Please read more carefully!!!!!

Doesn't happen often so its always nice when people read a post before replying to it