DBS Group (SGX: D05) Offering Scrip Dividend at S$29.54 per Share for 2021 First-Quarter: What Should Investors Do?
There could be many questions on investors’ minds, such as:
- What does scrip dividend even mean?
- How’s the process like?
- Should I choose to accept scrip or cash?
To help make an informed decision, let’s look at what investors should know about the latest DBS scrip dividend scheme.
TL;DR: What Investors Should Know About DBS Scrip Dividend Scheme for the 2021 First-Quarter
Here are some highlights of the things covered in this article:
- DBS is allowing investors to receive the 2021 first-quarter dividend in the form of new shares
- Each new share will be issued at S$29.54 while the bank’s shares closed at S$29.29 each on Friday, 14 May 2021
- There are two main scenarios to consider (one where the current share price is below the scrip price and the other where the current share price is above the scrip price)
- Investors have up till 8 June 2021, which is the last day for shareholders to submit their forms, to decide whether to accept their dividend in the form of cash or shares, or both
But First, What Is Scrip Dividend?
When a firm offers scrip dividend, the dividend is paid in the form of the company’s shares.
A company that is declaring dividend will inform its shareholders if its dividend is being paid in scrip or cash.
Shareholders may then choose to accept scrip or cash for their dividends, or both.
In general, the subscription price of the scrip dividend will be lower than the market price to entice shareholders to receive the dividend in the form of shares.
Sometimes, the discount can be as high as 10%.
By choosing the scrip dividend, investors don’t have to pay any brokerage charges or transaction fees to invest more in the company.
DBS Scrip Dividend Details
In its 2021 first-quarter earnings update released on 30 April 2021, DBS said that it’s declaring a dividend of S$0.18 per share and the scrip dividend scheme will be applicable.
This is in line with the MAS guidance for local banks to moderate their dividends in view of the pandemic-driven economic headwinds and for scrip dividend to be made available.
DBS added that scrip dividends will be issued at the average of the closing share prices on 10 and 11 May 2021.
On 12 May, DBS announced that the price at which each new share will be issued is S$29.54.
This is the average of the closing share prices on 10 and 11 May of S$29.63 and S$29.44, respectively.
Shareholders who held onto DBS shares as of 11 May (record date) 5pm would be entitled to the dividend.
The following is the timeline for the latest DBS scrip dividend scheme:
Date What's Happening?
On or about 24 May 2021 (Monday) Notices of Election and Scrip Dividend Entitlement Advices will be dispatched to eligible shareholders
8 June 2021 (Tuesday) Last day for shareholders to submit the Notices of Election and Notices of Cancellation
On or about 25 June 2021 (Friday) Dividend payment date
On or about 28 June 2021 (Monday) New shares to be listed on the Singapore stock exchange and credited to shareholders
The Notices of Election and Scrip Dividend Entitlement Advices will contain the information on how to go about applying for the scrip dividend.
So, let’s say you own 1,000 shares of DBS.
You are entitled to a dividend of S$180 since the declared dividend is S$0.18 per share.
Since the scrip share price is S$29.54, you have the option to get 6.09 new shares in DBS.
The math behind this is:
New shares entitled = (S$0.18 x number of shares owned) / S$29.54
DBS has said that where the number of new shares to be issued includes a fraction, it will be rounded up to the nearest whole number if the fraction is 0.5 or more.
If the fraction is less than 0.5, it will be rounded down to the nearest whole number and the fraction will be disregarded.
No cash will be paid on any disregarded fraction of a share.
Therefore, for the above example, the fraction will be rounded down to 6 new shares.
How Should Investors Choose?
The situation is made trickier since there’s no discount to the scrip price compared to DBS’ last traded share price.
As a shareholder of DBS for the long-term (assuming so), here are two scenarios for you to consider.
Scenario #1: Current Share Price Below Scrip Price
DBS last traded at a share price of S$29.29 on 14 May.
The price at which the new shares will be issued is S$29.54.
Therefore, it doesn’t really make sense to elect for shares instead of cash since the market price is below S$29.54.
In fact, if DBS share price remains far below S$29.54, you might be better off taking cash and buying its shares from the market…
even after taking into account the commission charges involved.
Do note that your shareholdings in DBS are likely to get diluted in this case since there would be an increased outstanding share count once the new shares are listed on the stock exchange.
Scenario #2: Current Share Price Above Scrip Price
If DBS share price rises to above S$29.54 (scrip issue price) and you think it will not fall below that price, it might be worth it to elect for new shares instead of cash.
This is because you are essentially getting a discount to what you can buy directly from the stock market.
Of course, the caveat here is that you will never know for sure how the share price will move in the short-term.
After rising, DBS share price could fall below S$29.54 and this could happen right after you have elected to receive the dividend in the form of shares.
In any case…
you have up till 8 June 2021, which is the last day for you to submit your form, to decide on how you wish to receive your dividend.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer may have a vested interest in the companies mentioned.