Last July, more than half of Bank of Ireland's shareholders opted to take their final dividends in Bank of Ireland shares rather than cash. Six months before that the proportion of shareholders who opted for a scrip dividend was also more than half the total.
But these 54 to 55 per cent of shareholders only accounted for 21 to 22 per cent of the value of the dividends, indicating pretty clearly that, while small shareholders like the scrip alternative, the institutions are happy to take the cash and stick it into euro-zone investments.
That's fine: at least both the punter and the fund manager had the choice of taking shares or cash. So what does Bank of Ireland do for next January's interim dividend - it scraps the scrip completely!
And what were its arguments in favour of abolishing the right to choose how its shareholders get paid their dividend?
Firstly, the bank says quite correctly that there is no longer any tax advantage in taking the scrip instead of cash. But that was also the case last January and July. Clearly, personal taxation does not seem to be an issue for the punter.
Bank of Ireland then says that scrip dividends are a lot less attractive when stock markets are very volatile. It's hard to argue with that but it still doesn't get away from the fact that shareholders are presumably rational adults and able to decide if they want to take a chance on volatility and take the scrip shares, or play it safe and take the cash.
Even if the bank's share price falls sharply after the price for the scrip shares is struck, it can simply follow the example of AIB last September. Back then, AIB scrapped its scrip dividend because the scrip shares were issued at €12.54 but AIB shares had fallen to €9.40 by the time they were due to be issued. But AIB also gave shareholders the option of buying more shares at the lower market price.
Bank of Ireland has chosen to scrap the scrip before it knows what's going to happen to its share price. It says that earnings per share will not be diluted if no scrip shares are issued. Hard to fault that argument either, but the reality is that the level of earnings dilution as a result of scrip dividend issues is pretty negligible. Finally, Bank of Ireland says the scrip dividend scheme is costly to administer. And there probably lies the reality behind a decision that is against shareholders' interests. Its small shareholders have shown they appreciate the option of taking a scrip dividend. There is no reason why they should not continue to have that option.
