There are two sides to getting paid in stock

Paying shareholders with stock shares, also known as scrip dividend, has allowed big Spanish companies to save 30 billion euros since 2009. The strategy, which Banco Santander heralded five years ago, has become a common move for these companies, because it lets them pay shareholders without having to fork over much-needed cash.

The banks are benefitting the most by paying scrip dividend, because they are piling up savings on their balance sheets. For these companies, it is critical to have big cash provisions, especially before EU stress tests. But, in addition to paying shareholders with scrip dividend, many companies are simply issuing new stock in order to pay out shareholders, but few of them are buying it back. This plan has its pros and cons, because it is profitable for companies, but not as much for the shareholders. While they accumulate stock shares, their shares get diluted and their overall holdings stay the same. Moreover, company policies around this issue are less than transparent. Investors can get ahold of a cash dividend in theory, but companies are set up to pay investors in scrip dividend by default. Not many people know this.

The biggest companies know that this is a temporary trend, and BBVA and La Caixa have already announced that they will start paying a cash dividend again. Not paying cash shortchanges investors and makes the Spanish stock market less attractive. For a while, it has been a playground for big funds, which only invest in companies with top-yielding cash dividends.