As the UK continues to hit major milestones allowing the relaxation of restrictions, 2021 is the recovery year and we are seeing an uptick in the number of companies looking to issue dividends in the coming months.
With the dividend pipeline growing, we look at some of the trends we see amongst issuers and provide an update on some exciting projects we have worked on for the resurgence.
- Simple and low-cost ways to increase shareholdings
- Builds shareholder engagement and loyalty
- Removes paper
- Overseas shareholders
Simple and low-cost ways to increase shareholdings
Reinvesting via DRIP typically enables shareholders to increase their shareholding through regular purchases of additional shares at a significantly reduced rate to those of a typical market transaction, whereas SCRIP enables shareholders to increase their holding absent of any dealing fees or stamp duty.
Builds shareholder engagement and loyalty
Building in some additional options to cash payments for your shareholders can be a great way to re-engage or break any period of inactivity, which may be the case when dividends were cancelled. It is also an opportunity to increase loyalty, providing shareholders with the chance to further invest in the company's future growth.
Both have cost up-sides. The DRIP purchase is subject to a minimum level commission payment and stamp duty charge, and the SCRIP allotment is free to shareholders (with the PLC covering management costs).
Similar to the cheque-less dividend, for those that offer a Corporate Sponsored Nominee, re-investment of the dividend removes the associated costs with issuing paper.
Both are a good alternative for many overseas shareholders who may incur high charges to exchange payments into local currencies.
Financial benefits and considerations
Operating a SCRIP provides the significant benefit of enabling the retention of cash within the business which would otherwise have been paid as a dividend, whereas a DRIP payment is the equivalent of a cash payment.
In terms of operational cost, to operate the market purchase element of the DRIP provides an opportunity to pass on all or some of the costs to the shareholder whereas the cost is covered in full by the company when operating SCRIP.
Capital headroom will also need to be considered and managed when operating a SCRIP scheme.
DRIP is an FCA regulated service but does not require shareholder approval. SCRIP is not regulated but does require shareholder approval due to the potential effect of the dilution of share capital.
As a regulated product, DRIP participants must be issued a quarterly statement, to minimise costs, statements are typically issued alongside the dividend payment or digitally via EQ’s document repository in periods of non-payment.
DRIP will have no impact on share buyback programmes, whereas SCRIP payments would appear to be a conflicting strategy to share buyback.
Working with research agencies, clients and drawing in experts from all over EQ, we've focussed on three main objectives:
- Simplify the stationery to focus on clear, uncomplicated language
- Promote the use of self-service options available to shareholders 24/7
- Reduce calls relating to dividend queries to the Customer Experience Centre
We're looking forward to sharing the work with you, and if you'd like a sneak preview, please speak with your Client Relationship Lead or get in touch here.