Rights issue shares and shareholder dilution?

Hi all,

I have shares in Banco Santander. Every few months they offer a rights issue which allows me to have those rights converted into new shares without me having to pay anything extra.

My question is where to these new shares that they give me come from and do they dilute existing shareholders?

viciam said:

Hi all,

I have shares in Banco Santander. Every few months they offer a rights issue which allows me to have those rights converted into new shares without me having to pay anything extra.

My question is where to these new shares that they give me come from and do they dilute existing shareholders?

Click to expand...

Google is best place to start with these.

A rights issue is basically a company needing to raise more capital/money through issuing new shares. The company can "print" as many shares as they want to, it's free in a way... but it will cost the current owners through diluting ownership.

The pie will be bigger, but now there will be more people to share it with. Though if all shareholders take up the rights offer (and no other rights offered to institutional investors/bankers) then it can appear as though there's no dilution of ownership since it's offered to current owners. I don't think that is even technically accurate, but it appear that way... regardless, you as owners are forking out more money to own the same proportion of the company.

It will cost you to buy the shares, just not cost any brokerage fees.

If the company keep offering these rights every few months, best to sell the shares and get out completely.

viciam said:

Hi all,

I have shares in Banco Santander. Every few months they offer a rights issue which allows me to have those rights converted into new shares without me having to pay anything extra.

My question is where to these new shares that they give me come from and do they dilute existing shareholders?

Click to expand...

This isn't a rights issue. That's different.

It is the right to receive your dividends in the form of scrip. It is called the Santander Scrip Dividend Scheme. There is no cost to it. It doesn't dilute anyone because you are either buying more stock at the prevailing price or just taking it in cash (and you could use this cash to buy more stock at the same price, for example...plus brokerage... just to demonstrate its equivalence). Essentially, you are going to get a dividend. You then decide whether you want that paid in the form of stock or cash. That's all you need to know. In Australia it would be called a Dividend Reinvestment Plan. If you want the cash, tick the cash box. Otherwise reinvest it to whatever percentage you want.

DeepState said:

This isn't a rights issue. That's different.

It is the right to receive your dividends in the form of scrip. It is called the Santander Scrip Dividend Scheme. There is no cost to it. It doesn't dilute anyone because you are either buying more stock at the prevailing price or just taking it in cash (and you could use this cash to buy more stock at the same price, for example...plus brokerage... just to demonstrate its equivalence). Essentially, you are going to get a dividend. You then decide whether you want that paid in the form of stock or cash. That's all you need to know. In Australia it would be called a Dividend Reinvestment Plan. If you want the cash, tick the cash box. Otherwise reinvest it to whatever percentage you want.

Click to expand...

RY,
Good man... did you actually went to their website or you knew about them? Quite thorough in your answers.

Btw, wouldn't a dividend reinvestment plan also dilute ownership? Unless it's from treasury shares or something, some shareholders will opt for cash, others for dividends, so still dilute either way.

Thanks Retired Young.

And Luutzu mentions a valid point! Where do these new shares come from? The treasury?