A great question in my inbox, why do some companies issues shares instead of cash for dividends and which should we take?
The why is simple enough, the company wants to pay the dividend but also wants to hang onto cash, usually because they have debt to pay off or a large deal pending. Pay the dividend with shares keeps some cash while still 'paying' a dividend.
This is a potential warning sign worth digging into. Why the shares rather than cash? Is liquidity dying, do they have debt problems? Maybe not, but dig around anyway just in case.
The trick is that these shares now have a perpetual right on all future profits, so they are more 'expensive' than cash which is why they're firstly not a great idea for the company and why I will usually take them as it's not just this dividend I get, but all future dividends as well.
Further if not every share holder takes the shares, then your economic interest in the company increases. Example, you own 20 of 100 shares = 20%. They issue a 5% dividend, that's 5 shares dividend in total, 1 goes to you, 3 to others and 1 shareholder takes cash, only 4 new shares issued. Now you have 21 of 104 shares = 20.2%.
We also save on brokerage if we take shares and typically they'll be issued at a slight discount (around 5%) to the share price.
As a rule I will take the shares unless I think the share price is way over priced, but the important consideration is the future dividends so I pretty much always take the shares.
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