If you’re into ZSE investing then surely the noise about dividends has hit your ears in recent months of the wonderful dividends being paid out by some of the companies on the bourse. We even have an article that attempts to rate the top 10 dividend-paying companies on the ZSE. Did you know there are different types of dividends? That’s right, 4 main types of dividends are commonly used and hybrid dividends which combine two or more types of dividends.
Cash dividends are just what they sound like, the company pays its shareholders cash as dividends. This is a straightforward process and the type of dividend we are used to seeing. This will be paid out on a date in the future. With dividends, you want to be aware of special trading dates. Once a dividend is announced the shares are considered to be trading cum dividend meaning with dividend. There is usually a specified dividend recording date, known as the last day of trading cum dividend and this is when they record the names and details of shareholders to pay out the dividend to. After this, the share is considered to trade ex-dividend (excluding dividend) meaning those who take ownership after this date will not be entitled to dividends.
Another interesting way to pay dividends is through what is called a stock dividend. It is not as common a practice as cash dividends but it has been used enough times to draw some viable examples. A company issues shares to shareholders in place of dividend. This should not be confused with a scrip dividend that awards shareholders shares of the company itself, this is the payment of a dividend via shares of a unit of the company being unbundled. In Zimbabwe, we can draw an example from Masimba Holdings which in 2015 unbundled Proplastics holdings by offering shares in Proplastics as a dividend to Masimba shareholders. Before you walk away thinking it’s a weird Zimbabwean thing like bond notes ad 3 tier pricing in 1988, Coca Cola spun off its subsidiary, Columbia Pictures Entertainment Inc.
The property dividend is pretty much what it sounds like, the company pays shareholders their dividend in the form of property. This of course excludes monetary payments or stocks as payments. To put in terms we can understand imagine a company that holds land offering that property to shareholders as dividends. The shareholders can then divide the land between themselves and get separate title on the land. The value of the dividend would be the fair value of the land given to shareholders. This is not a very popular form of a dividend, likely because of the complexity involved. So while we have no real-world examples to look at it is still something that is recognised in the practice of dividend distribution.
Another method of paying a dividend is known as the scrip dividend. A company can use this option when it is not liquid enough to satisfy the appetite of shareholders for dividends and proposes to pay them in additional shares of the company. In simple terms, a company issues more shares to existing shareholders in place of dividend. The shares can be awarded on a proportional basis of current shareholding, say 1 for every 20 shares held (5% dividend). This a practice that is more common than you would think it is initially. NMB in 2018, the aforementioned Proplastics in 2019, Edgars in 2019, now delisted Powerspeed Electrical in 2019 and the recent returnee SeedCo Limited all issued offers that included an option for scrip dividends for shareholders.
The hybrid dividend combines the elements of the other dividends. So think of a situation where a company offers to settle a dividend partly in cash and partly in stock. Or perhaps they combine cash and scrip dividend. The scenarios mentioned under scrip dividends in Zimbabwe included the option to receive part of the dividend in cash and part in scrip.
And there you have the wonderful wide world of dividends. I’m sure we all love a cash dividend but clearly, a stock dividend such as Proplastics or Columbia Pictures has worked out pretty well for shareholders.