UOB (SGX: U11) Has Announced Its Scrip Dividend Price at S$26.31 per Share: Here's What Investors Should Know

United Overseas Bank Ltd (SGX: U11) (UOB) has revealed its scrip dividend price for its 2020 fourth-quarter dividend. 

The bank declared a dividend of S$0.39 per share and investors can choose to get it in cash or via scrip (in the form of shares).

Right here, let’s look at what investors should know about the latest UOB scrip dividend scheme.

TL;DR: Here’s What To Know About UOB’s Scrip Dividend Scheme for the 2020 Fourth-Quarter

Here are some highlights of what will be covered:

• UOB is allowing investors to receive the 2020 fourth-quarter dividend in the form of shares, on top of the cash option
• Each new share will be issued at S$26.31, while UOB’s share price currently is at S$25.87
• There are two main scenarios to consider (one where the current share price is above the scrip price and the other where the current share price is below the scrip price)
• Investors have up till 4 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

Join us as we “predict” where UOB share price will go next…

UOB Scrip Dividend Scheme Details 

Scrip Share Price 

In its 2020 fourth-quarter earnings, UOB mentioned that it’s declaring a dividend of S$0.39 per share and the scrip dividend scheme will be applicable.

This is in line with Monetary Authority of Singapore’s call for local banks to moderate their dividends for 2020 and for scrip dividend to be made available.

UOB announced earlier this week that the price at which each new share will be issued is S$26.31.

This is the average of the closing share prices on 6 May and 7 May 2021 of S$26.03 and S$26.58, respectively.

Shareholders who held onto UOB shares as of 7 May (record date) 5pm would be entitled to the dividend.

Timeline for UOB Scrip Dividend Scheme

The following is the timeline for the latest UOB scrip dividend scheme that shareholders should note:

The Notices of Election and Scrip Dividend Entitlement Advices will contain the information on how to go about applying for the scrip dividend.

How Many New Shares Will UOB Shareholders Get?

Let’s say you own 1,000 shares of UOB.

You are entitled to a dividend of S$390 since the declared dividend is S$0.39 per share.

Since the scrip share price is S$26.31, you have the option of receiving 14.82 new shares in UOB.

The math behind this is:

New shares entitled = (S$0.39 x number of shares owned) / S$26.31

UOB 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 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 up to 15 new shares.

If the shareholder is entitled to less than one new share, the shareholder will not receive any new share but will receive the dividend in cash instead.

This is regardless of whether the person has elected to receive new shares or made a permanent election previously.

How Should Investors Choose?

Since there’s no substantial discount to the scrip price compared to UOB’s latest share price, investors have to ponder carefully.

As a shareholder of UOB for the long-term (assuming so), here are a couple of scenarios for you to consider (though they are not fool-proof).

Scenario #1: Current Share Price Below Scrip Price 

Currently, UOB’s shares are exchanging hands at S$25.87 each while the scrip price is S$26.31. 

In that case, it wouldn’t make sense to elect for new shares, in place of cash, since investors can buy from the market at a lower price. 

But investors have to account for the commission charges involved and decide if it’s still worthwhile buying shares from the market.

Also, if shareholders choose to forgo the scrip dividend, their shareholdings in UOB are likely to get diluted as 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 

On the other hand, if UOB’s share price rises to above the scrip price of S$26.31 and stays above it, then it might make sense to elect for new shares instead of cash.

We will never know for sure how UOB’s share price will react in the short-term though.

After rising, UOB’s share price could fall below the scrip price.

And this could very well happen right after you have elected to receive the dividend in the form of shares. 

In any case, you have up till 4 June 2021, which is the last day for shareholders to submit your forms, to decide on how you wish to receive your dividends.

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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.