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The Board of Directors of a listed company have decided that it needs to increase...

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The Board of Directors of a listed company have decided that it needs to increase its equity capital to ensure it is in a more stable financial position.

The shareholder profile is a mix of institutional and individual small shareholders.

The board is considering either:

   • A scrip dividend 

   • A zero dividend

 

Which THREE of the following would be considered disadvantages of a scrip dividend compared to a zero dividend?

A.

A scrip dividend results in distributable reserves being moved to non-distributable reserves.

B.

A scrip dividend will dilute the control of current shareholders.

C.

A scrip dividend results in more shares in issue which will create an expectation for future dividends.

D.

There will be company secretarial and additional administration involved with a scrip dividend.

E.

A scrip issue may give shareholders the impression that they are receiving something of value.

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A company plans to cut its dividend but is concerned that the share price will fall.