Martin Lee @ Sg
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MIIF Dividend Reinvestment

This post is a continuation of my earlier discussion on the Macquaire International Infrastructure Fund scrip dividend scheme. If you haven’t read it yet, it would be better for you to do so before reading on.

Even though the title of this post is about MIIF dividend reinvestment, what is discussed will be generally applicable to other companies that offer scrip dividend as well.

The same example will be used but we’ll also be looking at a few cases where the share price is not trading close to the NTA.

First, a recap of the default scenario.

Stock A has 10,000 shares in circulation and the net tangible assets of the company is $10,000. The market price of each share is $1. Thus, the share is trading at NTA price.

$1 of asset can produce $0.05 in earnings so initially, the $10,000 that the company has produces $500 in profits.

The issue price of the scrip dividend is $1 per share.

You own 1000 shares of the company. Earnings attributable to you is $50.

We will only consider the case where you are the only one taking up the scrip dividend and the company is able to reinvest the excess cash to produce the same rate of return.

Total shares in issue is now 10050 shares and you own 1050 shares of the company. Company assets have gone up to $10050.

For the next period, earnings per share is $0.05 and your share of the earnings will be $52.50. It has compounded at 5%.

Now, let us consider 2 more cases:

  1. Share price trading at 50% discount to NTA
  2. Share price trading at 200% of NTA

Share price trading at $0.50, NTA is $1/share

The issue price of the scrip dividend is $0.50 per share.

After you receive the scrip, the number of total shares will be 10100 and you will have 1100 shares.

NTA/share = 10050/10100=$0.9950

Your share of the assets = $0.9950 x 1100 = $1094.55

Earnings per share (for the next period) = 502.50/10100 = $0.049752/share

Your share of the earnings = 0.049752 x 1100 = $54.73 (9.46% increase)

Even though earnings per share for the company has dropped, your own earnings has increased more (9.46%) than that achieved by the company (5%) using your additional funds.

Those who didn’t opt for the scrip will see a decrease in their total earnings as their number of shares has not changed.

Share price trading at $2, NTA is $1/share

The issue price of the scrip dividend is $2 per share.

After you receive the scrip, the number of total shares will be 10025 and you will have 1025 shares.

NTA/share = 10050/10025=$1.00249

Your share of the assets = $1.00249 x 1025 = $1027.56

Earnings per share (for the next period) = 502.50/10025 = $0.05012/share

Your share of the earnings = 0.05012 x 1025 = $51.38 (2.8% increase)

The result is the opposite of the previous case.

Even though earnings per share for the company has increased, your own earnings has increased less (2.8%) than that achieved by the company (5%) using your additional funds.

Those who didn’t opt for the scrip will see an increase in their total earnings even though their number of shares has not changed.

From the above calculations, the conclusion I draw is that if the share price is trading at a discount to NTA, it is good to take scrip. If it is trading at a premium, taking cash would be better.

Of course, that’s taking a simple approach as I’m assuming the company can reinvest my capital at the same rate of growth of 5%. Repeating the calculations for different growth rates might be tedious and impractical. One way of doing that is to use an Excel sheet.

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Leave a Comment:

7 comments
freeier says 15 years ago

actually essentially end of the day, if u are fine with buying the share at the current price, then u wld be fine with taking the scripts as dividend..

if u think its expensive, then just take cash.

actually script dividend has one issue.. it offers the investor a few n week option. you can always wait for the price to move up or down then decide if you want the dividend in script or in cash.

Reply
    lioninvestor says 15 years ago

    Yes Freeier,

    That’s probably the bottom line.

    Reply
lioninvestor says 16 years ago

Hi James,

Yes, your new shares will rank alongside your old shares, so it will be entitled to future dividends.

Your broker will be able to advise you on the odd lot issue.

Personally, I won’t bother selling the odd lots.

Reply
james says 16 years ago

yeah i kinda figured that out after i typed the comment. thanks for the clarification anyway! i think they’ll round up the shares (there was a description on the back of the form)

how would i be able to trade in odd lots though? ask my broker/trading representative i suppose?

am i right to say that shares through SDS will ALSO be subject to future rounds of SDS? as in compounding… should be right?

james

Reply
lioninvestor says 16 years ago

Hi James,

Each share is issued at $0.79.

The dividend declared is 4.25cents/share so your 5000 shares will entitle you to 4.25 x 5000 = $212.50

If you elect to take scrip, you will receive 212.50/0.79=268.98 shares.

This will be rounded to 268 or 269 (not too sure).

There are no additional fees involved.

Essentially, you are taking the money from your dividend, and using it to buy MIIF at $0.79 without paying any brokerage or CDP fees.

Reply
james says 16 years ago

Hi,

I’m not too good with the Scrip Dividend Scheme – wondering if you could help me with the calculations.

I basically hold 5 lots (yes it’s little) and based on the 0.79cents per share SDS issue. What is the amount I would receive? Do I have to pay an additional amount for the shares?

Reply
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