When one think of dividends received from company that you have some shares in, you would think it would always come in a cheque in your mailbox waiting for you to cash into your bank account. Whether it is interim, final, special or tax exempt dividends, cash seems to be the think to look forward for. Kind of like actual returns from your investment which is tangible compared to capital appreciation which actually looks good on paper, but until you cash it out it remains on paper.
Last year I received some shares as dividends from my holding of YTLPOWR shares. They seem to consistently give them for the past 3 years. Probably due to their large cash pile sitting in the vault and their active share buybacks which are then given back to the shareholders as dividends. The ratio was 1 share dividend for every 25 shares held, so in percentage terms that would be a nett 4% gain of holdings. Thats not including some 5% before tax of cash dividends given out through out the year.
I thought share dividends was the best form of dividend to give simply because;
1. It is tax free
2. Requires no action from the shareholder to redeem it other than to hold the shares on ex-date
3. Increases my holding of the share without costs at my end (buying with cash dividends would incur brokerage charges)
4. Gives me more returns indirectly from future dividends based on my higher shares at hand. (compounding gains).
5. Doesn't enrich owners anymore than what they own in the company, meaning no cash was actually taken out and given to them, rather they get more shares like the rest of us, meaning the actual shareholding remain the same because of the ratio.
Bad thing is, the company actually needs to fork out cash to actually buy back the shares in the first place to be held in the Treasury until being given out. So the costs of actually accumulating shares is borne by the company instead of the shareholders. The exercise is actually costing the company assets to give out, meaning value is decreased from cash being used. So company loses in terms of assets(cash) for all shareholders to gain(equity).
Compared to cash dividends which can be actually felt in your bank account, share dividends only get reflected in your CDS account. And shares can appreciate and depreciate as well so the value of what is given isn't actually as solid as cash. But shares are considered volatile and we should all accept the risks of capital depreciation the moment we decided to buy shares in the first place. Another thing is, share dividend when given re-dilute the shares EPS again, therefore reducing the price a bit just like a dividend would. But unlike bonus shares which dilutes the shares, share dividends from buybacks are actually from what was already on the market and not newly issued shares, therefore does not make the share depreciate in value anymore than it actually appreciated during a buyback exercise.
Meanwhile cash dividends when given out netts you cash in hand or actual income but other than that, it doesn't add anymore value to your investment. It doesn't increases your holdings unless you use the cash to buy more shares which will incur you brokerage charges. Not to mention cash dividends are taxable. And you still need to cash in the cheque at the bank.
For example, assuming 2 companies A and B which has steady stock prices over 5 years and you invested in both at the same price per share. The only difference is A gives out a 7% cash dividend where as B gave 7% share dividend yearly. Also assuming the cash dividends are tax free and after cash dividends, the stock price of A goes back to the original price you bought.
After 5 years;
A gives out 7% CASH dividend yearly earns 35% of value from it's initial investment.
B gives out 7% SHARE dividend yearly earns 40% of value from it's initial investment due to the compounding effect.
The example above is kind of poor because I can't take all the instances of stock market movements and the fact that I haven't seen any company give up to 7% share dividend before. Please let me know if there is one though. But even when the cash dividend enjoyed tax free and the prices of the shares regain their pre-dividend price, the share dividend looks much better in terms of returns. Still worth debating the pros and cons of the matter but I'll state how much I would like a stable counter to give me share dividend instead of cash dividends.
Of course, a company needs to be hoarding lots of cash to be able to do so. We can't expect a company with little or no cash to actually do share buybacks and then give them out as dividends. Cash dividends however really depends on the company's financial performance since it is the yardstick to how much dividends it's suppose to give. A company who is not making money or need the money for something else, normally don't give favourable dividends relying instead on their share prices appreciation to generate interest in the market and their counter.
Last year I received some shares as dividends from my holding of YTLPOWR shares. They seem to consistently give them for the past 3 years. Probably due to their large cash pile sitting in the vault and their active share buybacks which are then given back to the shareholders as dividends. The ratio was 1 share dividend for every 25 shares held, so in percentage terms that would be a nett 4% gain of holdings. Thats not including some 5% before tax of cash dividends given out through out the year.
I thought share dividends was the best form of dividend to give simply because;
1. It is tax free
2. Requires no action from the shareholder to redeem it other than to hold the shares on ex-date
3. Increases my holding of the share without costs at my end (buying with cash dividends would incur brokerage charges)
4. Gives me more returns indirectly from future dividends based on my higher shares at hand. (compounding gains).
5. Doesn't enrich owners anymore than what they own in the company, meaning no cash was actually taken out and given to them, rather they get more shares like the rest of us, meaning the actual shareholding remain the same because of the ratio.
Bad thing is, the company actually needs to fork out cash to actually buy back the shares in the first place to be held in the Treasury until being given out. So the costs of actually accumulating shares is borne by the company instead of the shareholders. The exercise is actually costing the company assets to give out, meaning value is decreased from cash being used. So company loses in terms of assets(cash) for all shareholders to gain(equity).
Compared to cash dividends which can be actually felt in your bank account, share dividends only get reflected in your CDS account. And shares can appreciate and depreciate as well so the value of what is given isn't actually as solid as cash. But shares are considered volatile and we should all accept the risks of capital depreciation the moment we decided to buy shares in the first place. Another thing is, share dividend when given re-dilute the shares EPS again, therefore reducing the price a bit just like a dividend would. But unlike bonus shares which dilutes the shares, share dividends from buybacks are actually from what was already on the market and not newly issued shares, therefore does not make the share depreciate in value anymore than it actually appreciated during a buyback exercise.
Meanwhile cash dividends when given out netts you cash in hand or actual income but other than that, it doesn't add anymore value to your investment. It doesn't increases your holdings unless you use the cash to buy more shares which will incur you brokerage charges. Not to mention cash dividends are taxable. And you still need to cash in the cheque at the bank.
For example, assuming 2 companies A and B which has steady stock prices over 5 years and you invested in both at the same price per share. The only difference is A gives out a 7% cash dividend where as B gave 7% share dividend yearly. Also assuming the cash dividends are tax free and after cash dividends, the stock price of A goes back to the original price you bought.
After 5 years;
A gives out 7% CASH dividend yearly earns 35% of value from it's initial investment.
B gives out 7% SHARE dividend yearly earns 40% of value from it's initial investment due to the compounding effect.
The example above is kind of poor because I can't take all the instances of stock market movements and the fact that I haven't seen any company give up to 7% share dividend before. Please let me know if there is one though. But even when the cash dividend enjoyed tax free and the prices of the shares regain their pre-dividend price, the share dividend looks much better in terms of returns. Still worth debating the pros and cons of the matter but I'll state how much I would like a stable counter to give me share dividend instead of cash dividends.
Of course, a company needs to be hoarding lots of cash to be able to do so. We can't expect a company with little or no cash to actually do share buybacks and then give them out as dividends. Cash dividends however really depends on the company's financial performance since it is the yardstick to how much dividends it's suppose to give. A company who is not making money or need the money for something else, normally don't give favourable dividends relying instead on their share prices appreciation to generate interest in the market and their counter.
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