Flexible Dividend: in shares or in cash?
With the crisis, companies that generate dividends give the investor option to receive cash or shares.
When the entity proposes a flexible dividend to its shareholders, it gives them a deadline to opt for one or another form of payment. This is when many retail investors have doubts about which option is best for their interests: liquidity in the current account or actions that may enhance the benefits of investment? The price evolution of the company and when it goes across, or the period to which it is addressed investment may be the decisive factors for choosing one or the other option.
° If short term, it’s better to give cash dividends and thus being able to enjoy as soon as possible.
° However, if the investment is aimed at medium to long term, can be more profitable to receive the dividend in shares to increase its profitability, and will be charged a higher amount, but not the same moment but after a few months, even years depending on when implemented stock sales generated by this method of payment.
For small quantities it is best to accept payment in cash, as the potential benefits that could be achieved by changing actions would be negligible and therefore not worth using this strategy.
Advantages and disadvantages of flexible dividend
To opt for one of the two models of remuneration will be analyzed before its advantages and disadvantages.
In cash
Advantages:
1°) You can enjoy this compensation more quickly, because it received on the same day (one or two at most) that the company makes cash this payment to the shareholder.
2°) You always know the exact amount to be charged (is fixed compensation), and the date of payment into the account.
3°) Provides some tax advantages, such as the tax exemption of up to 1,500 Dollars.
Disadvantages:
1°) t is deducted from the trading price of the company, although it usually recovers quite often after a few days or weeks.
2°) It is not too much money, unless the inverted quantity is very high. In this case, the remuneration will be worth it.
3°) Taxes are deducted at maturity, so that the net amount is lower than that which it was announced.
In stock
Advantages:
° It allows the revaluation of the paid amount if evolution is positive at the time of the sale.
° Possible to expand investment whenever this remuneration is paid through a strategy of reinvestment of dividends.
Disadvantages:
° If the tendency of your quotation is downward, the remuneration through this section also will be eroded when the effective sale, with ° a decrease in their contributions.
° It is a variable payment that depends on the evolution of the stock price.
° As a rule, already not be that the amount invested is very high, produces few actions.
Dividends in the form of rights
When the payment of dividends is done through shares, dictates a certain number of titles per share, just like if a capital increase is concerned. This shareholder has a period of 15 to 25 days for what to do with this payment which provides publicly traded company.
But there is another alternative that can turn the retail investor: selling their rights in the stock market for its dividend as soon as possible. In this case, you have many rights as shares in your portfolio (if you have 1,000 shares would fall 1,000 rights). These are listed on the stock market for a limited time as if it were worth, and this fee should be paid through a sales order, with corresponding fees for the operation.
