Portfolio management

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16. What to do with dividends

In general, dividends are cash payments. You should treat them the way you would any other cash. However, some companies offer you the option of a 'scrip dividend'. This takes the form of more shares, which you are given instead of the equivalent amount of money.

You may consider taking the scrip option if you are a long-term holder.

The advantages are:

• You do not have to pay any commission to acquire the shares. This reduces your average dealing costs
• You will get a better return from shares than from cash in the long run
• Scrip shares are just like any other shares. They pay you a dividend, which you can opt to take in the form of more scrip, and so on.

Scrip dividends can make a formidable contribution to building up core holdings over the years. This is a great strategy for passive investors.

But if you are a very active investor or trader, you may be better off taking cash. If you take scrip shares, you may not have time to receive them before you have traded away the shares that paid the dividend originally. In that case, you will be left with a tiny, useless holding that will be very expensive to sell.

1. First things first 2. Should you invest before paying off your mortgage? 3. Do you want growth or income? 4. Diversification: summary 5. Diversification: Safe custody 6. Diversification: asset allocation 7. Diversification: shares 8. Diversification: sectors 9. Diversification: countries 10. Balancing your portfolio 11. What should you hold where? 12. Tips for married couples 13. Lump sum or drip feed? 14. The role of cash 15. Rebalancing your portfolio 16. What to do with dividends 17. All about bonds 18. What to do if you inherit a portfolio 19. Benchmarking performance 20. Setting up a portfolio spreadsheet 21. Conclusion

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