Scrip Dividend - how to treat them in valuation?

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#9
My personal view is that the issuing of scrip dividend is not done with the benefits to minority shareholders in mind. Let's have a thought experiment:

Take the extreme case in which every shareholder opt for scrip. Everyone will end up with the same percentage ownership in the company as before (save for fractional entitlement). Cash is retained in company. So company pacified shareholders' demand for dividend without really changing anything. But something has changed: shareholders will end up with odd lots! While it isn't a problem for the majority shareholder, transaction cost will be higher for those who want to round up/down/exit their holdings.

Take the other extreme in which only the majority shareholder opts for scrip, while others opt for cash. In this case, the majority shareholder raises his/her stake in the company at the expense of the other shareholders. It's equivalent to paying everyone a cash dividend and then doing a private placement to the majority shareholder at a discount.

Reality will be somewhere between these extremities. So those who opt for scrip raise their percentage ownership at the expense of those who opt for cash, the extend of which increases with the discount in scrip price, and with the majority shareholder being the biggest beneficiary. Again the issue of odd lots arises for those minorities who have opted for "discounted" scrip.

If companies are altruistic about rewarding shareholders, I'd prefer that they do it via cash dividends, and let those who wants to raise their stakes in the company do so via share purchase from the market using those dividends.
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