Thursday, 12 May 2016

OCBC Scrip Dividend Scheme

After waited for more than 2 weeks since XD date, have received the letter of notice for my scrip dividends from OCBC today. Finally.

What is scrip dividend?
Investopedia: A stock dividend is a dividend payment made in the form of additional shares, rather than a cash payout.
穷小子: Basically is payment to you by shares instead of cash for dividends.

From what I know, the 3 local pillar banks (DBS, OCBC, UOB) stocks may give their shareholders an option to choose between payment by shares or cash for each round of dividends payment. No, scrip dividend is not a mandatory for every year, it is a decision by the management and is one of the resolutions which the shareholders had to vote during the Annual General Meeting. In short, we wouldn't know whether the company would still have scrip dividend for next year until the next AGM.

How is the number of OCBC shares determined?
There is a formula for this actually. Using the amount of dividend (cash) which supposed to receive, divided by a 10% discount to the price which was determined during the price determination period, from 26 April 2016 to 28 April 2016 (both dates inclusive).
The price was determined at $9.01 for this round of dividend. which gives you a $8.11 after the 10% discount.
E.g. Supposing should you received $405.50 as cash dividend, you will have entitlement of 50 OCBC shares as scrip dividend scheme.

Should take up scrip dividend or cash dividend?
Let's weight some of the pros and cons which I can think of now if choose to receive in scrip dividend.

  • The determined price is still lower than the market price, which is $8.33 as of today closed price.
  • Although it became less than 2.5% discount instead of the 10% discount, we still had a free $0.22 per share from the scrip.
  • Fractional entitlements to a hundredth of a share or more will be rounded up to the nearest whole share. E.g.
    - 50.01 shares will be rounded up to 51,
    - 50.009 shares will be rounded down to 50 shares.
  • Is a good method for compounding if you are looking it as a long term investment.
  • Saves all the commissions and fees for the buying and selling transactions if one chooses to reinvest the dividend.
  • The value of the shares from the scrip dividends may increase in future. So long the price is more than $8.11, it means is in paper profits already.
  • No cash received, means no actual gain realised. Cash is King, some may say.
  • It may no longer to be seen as a 10% discount, because of the market price is getting nearer to $8.11. Might as well take the cash first and plan for the next move.
  • There will be odd lots in resulted, which may be inconvenient to sell in the market.
  • The value of the shares from the scrip dividends may decrease in future. If  the market price is less than $8.11, it is "eating" up the dividends, which means is in paper loss.
Scrip dividend or Cash dividend? You make the call.
This is the third time which I will opt for scrip dividend. Okie, I am bias, I can't think of much cons for this. It is a brown form this time instead of the green form which were received previously. Maybe because I had made a standing instruction for receiving scrip dividend as my permanent election for all my subsequent dividends until further notice.

Errmm. One more Pros pointers for 穷小子. He was entitled 100 shares for this round of scrip dividend, no odd lots for this time.


  1. Hi, 穷小子, Thanks for your post.

    For fractional entitlement, it's rounded up to the nearest 100th of a share.

    E.g if gotten 15.002, you will be entitled to 15 shares.

    Also UOB only provide script option occasionally. e.g. it wasn't offered this time round.

    1. Hi Eye of the Storm,
      Thanks for your comments.
      Yes you are right, I wasnt clear in my post, have made some changes to make it clearer.
      Scrip dividend is not mandatory, the decision will be made every year. Likewise for DBS and OCBC. :)

  2. UOB scrip dividend payable 20/6/2017 does not consider the fraction of a share. For example, 23.15 shares is round off to 23 shares with no compensation for 0.15 shares.