Spanish market issue: script dividend as extended policy

One of the big issues of the stock market in Spain is the one represented in this picture.

Dividends? No, “papers”

Some of the popular investment methods is based on dividends, some others at least recognize that dividends is an incentive to invest on a company.

The main companies in the IBEX-35 market, so many times, instead of cutting the dividend or ask for money to the market, they have created a mechanism to do two things at the same time: script dividend.

They define a process with different steps that you have to follow. Mainly there are 2 options:

  • you grab the dividends and run.
  • you grab a set of new stocks (a new amount of stocks published to inject extra money into the company).

The process to do it

Once that is declared the “script dividend” you have to learn how to go through the process of claiming the new stocks or to take the dividend itself. This process is not straight forward, it’s a very complex process that requires you time to understand it, and then you have to pay attention the key days where you have to make a decision.

In a nutshell, so many small investors fall in the trap and they capture more stocks that they really do not want, diluting the value of the company.

My opinion

is that an incentive turns into an obligation to the investor, making him to decide on something that is not initially their responsibility. The result in the long term is not working well for the companies that are following this policy.

 

 

 

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