Dividends: Stock vs Cash

There are companies that as a normal course of operation pay a portion of their dividends in stock (sometimes referred to as script). I’m not referring to companies that lack the cash to pay the dividend either, as a number of these companies are resident on the CCC list maintained by David Fish. Some of these pay a stock dividend irregularly while others pay a stock dividend annually. So the ultimate question is which is better for the investor? Let’s dive into a real example to get the answer.

Commerce Bancshares (CBSH) declared a cash dividend ($.22 per share) and a 5% stock dividend payable December 14th. Yesterday they announced a 5% increase to their dividend to a new rate of $.225 per share. Yeah, I get it. The new rate is a direct 2.2% increase, but when applied against the previous rate of $0.214 (when adjusted for the stock dividend) it’s 5%. For those of you still following along, David Fish’s list carries the adjusted values but the NASDAQ website doesn’t appear to. In fact, I’m not aware of any ‘master list’ of companies paying stock dividends but as an investor geared towards dividend growth, if you are comparing two companies one that pays all cash and the other paying partially in stock unless the results are normalized you’ll be comparing apples to oranges. The end result may be a dividend growth rate more in line with expectations.

Generally, with a couple of exceptions, a stock dividend is better as:

  • Compounding is enhanced
  • Stock dividends are only taxable when sold not when received (US)

The obvious disadvantage is it may increase your selling costs if your strategy is other than buy and hold. Also, you may not want to deal with fractional shares. Another factor is your broker needs to accept and apply fractional shares. Company sponsored DRIPs – no issue. Motif applies full and/or fractional shares automatically (they have no DRIP plans). Charles Schwab will apply fractional shares if enrolled in their custom DRIP program (no fees). Otherwise they’ll pay cash (taxable event) in lieu of fractional shares. Your broker may be different. Most companies paying stock dividends pay out in fractions but there are a couple that round up to the next whole share.

Last, I’ll share the companies that I’m aware of paying stock dividends. As this list may be incomplete, feel free to add via the comments section.

COMPANY TICKER CCC YRS OWN COMMENT
1st Source Corp. SRCE 28
Arrow Financial Corp. AROW 22 annual
Bank of South Carolina Corp. BKSC 5
Codorus Valley Bancorp Inc. CVLY 5 annual
Commerce Bancshares CBSH 47 X annual
Hawthorne Bancshares

FNB Bancorp

HWBK

FNBG

0

5

X

 

 annual

 

Landmark Bancorp Inc. LARK 14 X annual
Southside Bancshares SBSI 21 X annual
Monarch Financial Holdings MNRK 6 X pending merger
Tootsie Roll Industries TR 49
Vector Group Ltd. VGR 18 annual
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One thought on “Dividends: Stock vs Cash

  1. […] One of my strategies is to invest in companies that pay a portion of their dividends as a stock dividend.  One of these is Hawthorne Bancshares , which paid both a stock and cash dividend on July 1st.  Imagine my surprise to find this entry in my Schwab account: […]

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