Alternatives to cash dividends - part 1

In this lesson

1. 0:00 Introduction to dividend alternatives
2. 0:30 What is a scrip dividend
3. 1:08 How scrip dividends affect shareholder wealth
4. 2:07 Tax and practical benefits of scrip dividends
5. 3:00 Share price impact and earnings per share theory
6. 3:40 Scrip dividend calculation worked example
7. 6:15 Earnings per share impact calculation

About this lesson

You'll discover why companies issue bonus shares instead of cash dividends, understand the impact on shareholder wealth and market capitalisation, and master the calculations for earnings per share when a scrip dividend occurs. Through worked examples with real numbers, you'll see how share price falls offset the increase in shares issued, leaving shareholder wealth unchanged—and why this matters when you're analysing dividend policy in your exams. This video covers the theory behind scrip dividends first: how they preserve cash for the business, the tax advantages for shareholders, and why the share price must fall when new shares are issued without additional value entering the firm. You'll then work through a practical example calculating the new share price, market capitalisation, and earnings per share following a scrip issue, building confidence with the calculations you'll encounter in FM, AFM, and SBL papers. By the end, you'll understand that a scrip dividend is essentially a neutral event for shareholders—more shares at a lower price—and you'll be ready to apply this logic to exam scenarios where you're asked to compare the impact of different dividend strategies on key ratios.

Duration: 7m