Scrip Dividens

Abissinia · (#1 (**permalink**))

Grrr what exactly is scrip dividends?

Gosh I am so confused by all the gobbly gook information out there, I feel like throwing in the towel… please help.

All I want to know is if its beneficial for me to receive dividends in the form of scrip (i am hoping it means shares?) rather than cash? Any similarities to stock dividends at all?

I have tried researching online but I am getting conflicting results.

Also which UK broker is the best for active investors? The only one I know well is TD Waterhouse.

PS, if anyone got a hot tip please don’t be shy to share

.

truetoyourself · (#2 (**permalink**))

A benefit distribution in which a company distributes dividends in share form or a combination of share and cash.

MarcusGarveyLives · (#3 (**permalink**))

In a scrip dividend, the cash dividend is foregone in lieu of newly issued shares allotted to shareholders who take up the offer to receive it. The shares have an equivalent cash value to the dividend. No dealing charges or stamp duty is payable on the issue of the new shares. The issuance of new shares dilutes the interests of existing shareholders who do not participate in the scrip dividend. These schemes were common in the UK in 1980s but fell out of favour in the mid 1990s. They seemed to have staged a mini-revival in the past couple of years.

In a dividend reinvestment plan ("DRIP"), the cash dividend is used to purchase existing shares in the market, subject to dealing expenses. No new shares are issued and the exercise is therefore non-dilutive. Most FTSE 350 companies will currently have DRIPS in operation.

Abissinia · (#4 (**permalink**))

Thanks for the reply.

So are there any risks associated with it? And also how big is the benefit (tax exemption)?

truetoyourself · (#5 (**permalink**))

I think you will need to check the companies business performance.

I know the tax rates on dividends are 32.5% higher rate and 10% basic rate.

When you have shares in a company,depending on the annual performance the company will issue a dividend, based on their retained profits. If they are issuing you more shares instead of dividends, you will need to consider the future performance of the company.It is not straight forward because as the value of the shares grow(if they grow!) you will have to pay tax if you cash them in anyway. The tax system is not that simple, I've been in it for over 15 yrs!

tantalise · (#6 (**permalink**))

Hi there

A scrip div is essentially a stock div. There are no tax breaks.(The exception will be if it is in an ISA or similar vehicle and the rules have not been broken).You will be taxed on the 'forgone dividend'. However, if the amount of the cash div differs substantially from the mkt value of the stock div. You will be taxed on the market value.

substantially means 15% greater/less than the cash dividend.

If you have any further queries, do shout as a large volume of my job involves this!

Abissinia · (#7 (**permalink**))

I am reading a few books on investments at the moment particularly real estate but one or two of them have a chapter or two dedicated to stocks and bonds. I also found an essay online on scrip dividens, it's like 20 pages long and to be honest i am on page 11 and already hopelessly lost onwhat it is that its trying to say but i plan on rereadingjust to see if i am missing something crucial.

Anyways thanks for the reply. @tantalise i have a meeting with an adviser end of this week, hoping they will be able to clear up all the questions i have if not i am going to come back to you if that's ok?

tantalise · (#8 (**permalink**))

@Abissinia: Sorry its taken this long to respond. I havent logged in for a while. Hope your meeting went well. However, feel free to contact me with any outstanding questions as I am happy to assist if i can!

Kind regards

Tantalise