A stock dividend is a dividend paid using stocks instead of cash. It can be either Stock only, or an optional dividend with Cash as well as Stock.
Reason behind the stock dividend
The company uses the stock option to give the shareholders an a chance to reinvest the dividend cash into the company. Whats good about it is that the company would issue new shares at a discount price.
A discount would be something like this: “80% of the average closing price of the share in the stock exchange”.
You could also have an option for the shareholders to invest 50% of their dividend cash into Stocks and get the remaining in Cash.
- Company: ATOS
- ISIN: FR0000051732
- Market: Euronext
he Company’s Combined General Meeting of Shareholders, held on April 30, 2019, approved under the 3rd resolution the proposed ordinary dividend for the fiscal year 2018, i.e. € 1.70 per share, and decided under the 4th resolution that each shareholder may elect to receive the dividend payment either in cash or in new shares of the CompanySource: HERE
The discount can be found here:
The issuance price of the new shares of the Company which will be issued in consideration for the dividend is set at €62.02, and is equal to 95% of the average opening prices on Euronext Paris regulated market over the twenty trading days before April 30, 2019Source: HERE
Option election period in the stock dividend
As a result of this option, the company needs to give the shareholders, an election period. This period is usually between fifteen days to one month. The requests are then sent to the company, via mail.
The option to receive the dividend payment in new shares of the Company may be exercised by the shareholders between May 7, 2019 and May 22, 2019, inclusive, by sending their request to the financial intermediaries authorized to pay such dividend or, for shareholders listed in the issuer registered accounts held by the Company, to its authorized representative (Société Générale, Département des Titres et Bourse, 32, rue du Champ de Tir, CS 30812 – 44308 Nantes Cedex 3). After May 22, 2019, or if the option is not exercised, the ordinary dividend shall only be paid in cashSource: HERE
As you can see, there will always be a default option, which does fall to Cash most of the time, in the case no one defines the exact option he or she chooses.
In contrast to the regular cash dividend, the Pay-date is far from the ex-date, to allow for an “option election period”
Yes, you can have a mixed option, say 50% Cash and 50% stock.
Source of the new shares
The source of the new shares is very important and makes the difference between two types of stock dividends:
1 – Stock dividend
When the company issues new shares to pay the stock dividend
2 – DRIP (Dividend reinvestment plan)
When the company uses “Treasury shares” to pay the stock dividend
Consequently, one should pay attention to the source of the shares to be distributed, in order to decide which corporate action we are talking about.
In our example, we can read the following:
The scrip dividend, is a special stock dividend that holds a dividend right. Similarly to the Rights issue event, where we had rights, that could be sold to other investors, The scrip dividend is a dividend with a right, attached to it, that can be sold to other investors.
The key details to extract from this event would be:
- Dividend rate
- Dividend options
- Option Election period
- Resulting shares ISIN: meaning the ISIN of the shares to receive, which usually is the same as the company’s shares
- And of course: Ex-date, Record-date and the Pay-date