Dividend Payment: Shares or Cash?

When paying dividends, some companies allow you to choose between payment in cash or payment in shares. What are the advantages and disadvantages of these two payment methods for the individual investor?

Cash payment:

It is still today the most common payment method.
On the day of payment, the amount corresponding to the number of shares held in the portfolio is directly paid into the cash account from the traditional securities account, or the PEA (editor’s note: Share Savings Plan, only for French residents).

The main advantage of opting for this solution is that you can then choose for yourself in which stocks, which companies, you want to reinvest these profits (for example, for the purpose of diversifying your portfolio, if you have just created it).
In addition, if you receive your earnings within a PEA, your winnings will not be subject to income tax, provided of course that no withdrawals are made before 5 years of holding the account.

Please note: this benefit is not valid for the securities accountAt the end of the year, you will have to pay tax, as well as social security contributions, relating to your earnings.

Payment in shares:

This method is becoming increasingly popular among retail investors.

When a company gives investors a choice, These have a period of reflection (usually 1 month), before giving their response. The payment of the dividend is therefore slightly delayed compared to the payment in cash.
At the end of this period of reflection and if the shareholder agrees, then the company pays him a number of shares proportional to the amount of the cash dividend he would have received.
These shares will be obtained with a preferential price compared to the real market prices: it can therefore be an excellent opportunity for the investor to increase, at a good price, the number of shares of a company he trusts.
And holding more shares means receiving more dividends next year.

For those who have a traditional securities account, this is also an advantage: Dividends paid in shares are not subject to income tax.
Not to mention that it also avoids paying new transaction and management fees that a new investment would.

To each his own method:

Choosing one or the other payment method will of course depend on several factors relating to the investor's needs.
In the first year of creating your portfolio, it is rather recommended to opt for payment of the dividend in cash.
The profits will be used to invest in new companies in order to diversify the portfolio and "smooth out the risk": the best-performing lines will compensate for the least performing ones.

But as soon as the portfolio is balanced, the investor will have new needs: increase profits faster.
Getting new shares at an attractive price can therefore help in this regard.
There is, however, a drawback to this method: you must own a sufficient number of shares so that the amount of the dividend allows you to receive new shares.
Otherwise, payment can only be made in cash.