Wednesday, 13 July 2016

First-World Problem - Take SCRIP Or Cash?

Applying for SCRIP has its advantages which benefit investors with certain objectives.

1) SCRIP allows an investor to build up his position in a long-term core counter without having to pay the fees and we all know fees significantly erode our returns over time. In the case of OCBC and Raffles Medical Group, the discounted pricing of their SCRIP make it even more worthwhile. Both companies have solid earnings & dividend growth and management are still pursuing sustainable growth. OCBC just completed a massive acquisition of Barclays' private wealth management business in Singapore and Hong Kong. Raffles Medical Group is building a new wing next to its flagship Raffles Hospital as well as an international hospital in Shanghai. If an investor wants to enjoy the fruits of these expansion plans, he should apply for their SCRIPs. On the other hand, if a struggling company such as Noble offer SCRIP, I would avoid it with ten-foot pole. Anyway, I would not be vested in Noble in the first place.....hahaha!

2) Since an investor apply for the SCRIP year after year over a long period, the compounding effect will multiply several times. For example, you receive 10 shares this year, this particular batch of 10 shares will reap you more shares next year, maybe 11 shares. Then, the 21 shares will reap you even more shares next year and this wealth-generation cycle keeps rolling on.

2) SCRIP is also more suitable for investors with substantial amounts of the counter. For example, if you only own 100 shares of OCBC, just take the dividends in cash. I would suggest applying for SCRIP when you have at least 2000 shares of OCBC as the returns will be more meaningful.

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