Previously I shared my choice on the Dividend Reinvestment Plan for OCBC Bank (O39) and CapitaLand Retail China Trust (AU8U)
Scrip dividend scheme or otherwise Distribution Reinvestment Plan (DRP) allows shareholders to opt for dividend payout in the form of shares in lieu of of cash. Existing shareholders could increase their shareholding over time without incurring typical transaction costs in the open market e.g. brokerage commissions, trading fees, stamp duty etc. Scrip dividend price is also usually priced in at a discount.
The company benefits from the cash retained which would otherwise have to be given out as cash dividends. The cash conserved could be further used as working capital or future growth of the company.
Options for shareholders
Most of the time, you only have the option of receiving either cash or shares. Sometimes, a third option allows you to receive part shares, part cash.
Dilution for existing shareholders