Prudential's Scrip Dividend: A Strategic Move to Boost Shareholder Value?

Prudential plc (LSE: PRU), a leading global financial services firm, has announced a unique offering for its FY24 second interim dividend: a scrip dividend alternative. Shareholders can now choose to receive new ordinary shares instead of cash, a move that could reshape the company’s shareholder engagement strategy. This article explores the implications of this decision, its benefits, risks, and how it aligns with Prudential’s broader goals.

What Is a Scrip Dividend?

A scrip dividend allows shareholders to convert their cash dividend entitlement into new company shares, typically issued at a discounted rate. Unlike traditional dividends, this option avoids dealing costs, stamp duty, and potential capital gains tax, making it an attractive choice for long-term investors. For Prudential, the scrip dividend is part of its Evergreen Scrip Dividend Scheme, which aims to enhance liquidity in its Hong Kong-listed shares (HKEX: 2378).

Prudential’s FY24 Scrip Dividend Details

• Dividend Amount: 16.29 US cents per ordinary share.
• Eligibility: Shareholders must hold a minimum of 67 ordinary shares on the Record Date (28 March 2025).
• Scrip Reference Price: Calculated as the average middle-market price of Prudential’s shares on the London Stock Exchange (LSE) over five days starting from the Ex-Dividend Date (27 March 2025).
• New Shares Issued: ~22,134 ordinary shares, with ~17,159 sold via a Dealing Facility for UK shareholders unable to hold Hong Kong-listed shares directly.
• Deadline for Election: 22 April 2025 (UK/Hong Kong) or 10 April 2025 (Singapore).

Key Benefits for Shareholders

1. Cost Efficiency:
   Eligible shareholders avoid stamp duty and dealing fees, as scrip shares are issued directly. For example, a UK shareholder holding 1,000 shares would receive ~10 new shares (valued at the Scrip Reference Price) plus a residual cash payout.

2. Liquidity Boost in Hong Kong:
   By issuing shares on the Hong Kong line, Prudential aims to narrow the liquidity gap between its listings in London and Hong Kong. This could attract more investors to its Asian operations, a key growth area for the firm.

3. Evergreen Flexibility:
   Shareholders can elect to participate in all future scrip dividends permanently, reducing administrative friction. This aligns with Prudential’s mission to build long-term relationships with investors.

Risks and Considerations

• Dilution Concerns:
  Issuing new shares could dilute existing shareholders’ ownership. However, Prudential has pledged to neutralize dilution via an on-market buyback on the LSE, a common practice for scrip schemes.

• Market Volatility Safeguards:
  If the LSE share price falls by 15% or more from the Scrip Reference Price by the election deadline, the scrip option is suspended, and cash dividends are paid instead.

• Jurisdictional Complexity:
  UK shareholders without a Hong Kong address must use the Dealing Facility, incurring minor fees (e.g., 0.1% Hong Kong stamp duty). Singapore shareholders must submit elections via the Central Depository (CDP).

Strategic Rationale: Why Hong Kong?

Prudential’s focus on Hong Kong reflects its Asian growth strategy. The company is a constituent of the Hang Seng Composite Index and participates in the Shenzhen-Hong Kong and Shanghai-Hong Kong Stock Connect, which facilitates cross-border investments. By boosting Hong Kong share liquidity, Prudential strengthens its appeal to Asian institutional investors and retail traders.

Conclusion: A Win-Win for Prudential and Shareholders?

The scrip dividend offers a compelling value proposition:
- For Shareholders: Reduced costs, long-term equity growth, and flexibility through the Evergreen Scheme.
- For Prudential: Enhanced liquidity in key markets and a stronger shareholder base.

The shows the stock has risen ~30% year-to-date, reflecting investor confidence. Combined with its robust financials—£21 billion market cap and strong cash flows—the scrip dividend reinforces Prudential’s position as a trustworthy, growth-oriented firm.

While risks like dilution exist, the buyback mitigation and 15% price safeguard reduce downside exposure. For long-term investors, this scrip option is a strategic opportunity to grow their stake in a global financial leader.

Final Verdict: A prudent move for both Prudential and its shareholders.