Employee share plan dividends: Understanding the different types

As with shareholders, share plan participants who hold shares in a share plan may be entitled to receive dividends from the shares they own. Dividends are a way for companies to distribute a portion of their profits to shareholders. Dividend payments are made on a regular basis for an amount that directly reflects the profits a company has experienced over a period.

The most common type of dividend is the cash dividend, however there are several other dividend types. Understanding the differences in types of dividends and the benefits of each help set up the overall dividend strategy of your company creating alignment with your goals and objectives. Keep reading for insight into the types of share plan dividends and what each can do for your participants and your company.

Are DRIPs, scrip dividends, and asset dividends more complex to implement?

Cash dividends is relatively straightforward, and the most common way companies distribute profits to shareholders. DRIPs, scrip dividends, and asset dividends are special practices that can offer unique and advantageous benefits supporting company goals and objectives.

However, in comparison to cash dividends, they generally require additional considerations and processes to implement. These considerations and processes include, but are not limited to:

DRIPs

• Robust System:
  Unlike cash dividend, DRIPs require complicated calculations due to their compounding nature. Achieving compounding growth requires a robust system for accurate calculation to maximize the benefits of each participant's dividend entitlement via reinvestment.
• Experienced Service Team:
  Besides the system, a team that is capable of operating the system and completing the entire process within the reasonable timeline, including fund calculation, stock purchase, share allocation, is essential to ensure the accuracy of compounded stock.

Scrip Dividends

• Election Platform:
  A user-friendly platform is essential to enable employees to easily select between receiving dividends in cash or stock, as well as providing effective employee communications.
• Allocation:
  After consolidating employee choices, accurate allocation of corresponding stocks or cash must be executed based on predefined rules. This involves seamless integration of selection results with cash and share distribution.

Asset Dividends

• Multiple Stocks:
  It's essential to enable employees to view a variety of stock holdings in their online accounts and conveniently manage different stock transactions.
• Future Rights Support:
  A more challenging future scenario may arise that involves supporting various shareholder rights associated with other company's stocks. This includes dividend distribution, voting rights, and participation in corporate events (e.g., stock splits or consolidations).

No matter the dividend structure, Computershare offers experience and expertise to support your dividend events for you and your plan participants and guide companies through each critical step of the process.