So, when the shareholders have to accept the scrip dividend, this is essentially a "scrip issue", and they end up with more shares worth less each so nothing changes. But When there is a choice between a scrip dividend and cash dividend, why isn't the price of the shares forced down as in a scrip issue or a rights issue? Like say 80% of shareholders opt for the dividend as opposed to cash, where do these new shares come from? It seems exactly the same as a rights issue, where the shareholders in effect are using their dividend to buy new shares, so why doesn't the price move at all?
Hi Good question Yes, it is like a rights issue. With a normal rights issue, the share price is expected to go down as the rights issue is at an offer price lower than the market price of the shares. However, with a scrip dividend, the offer price in the "rights issue" part is the market price of the shares. So, the share price isn't changed by this rights issue. This might still be attractive to shareholders compared to buying shares in the market as, even though the share price isn't lower, dealing costs and stamp duty can be avoided. Hope this helps Lynn
