Although Spanish banks are being forced to bolster their capital reserves and increase provisions in order to clean up the real estate assets on their balance sheets, they will still pay shareholder dividends. That said, it looks like more and more banks will opt to pay shareholders in stock instead of cash. In fact, more than half of the big banks' dividends (54%) are being paid in stock already.
The policy that most banks are leaning toward is to use a scrip dividend, which is an option to be paid in stock instead of cash, for two out of four quarterly dividends. Still, Santander has used this this method three times to pay 2011 dividends. Santander has already given the option for two out of three dividends that it has paid based on profits earned last year and is scheduled to repeat the strategy for its upcoming May dividend.
If between 73% and 85% of Santander investors choose to accept their dividend in shares, which has occurred in the two previous occasions, Santander will administer 60% of total dividends in stock. Santander was the first lender to introduce the scrip dividend and at this time is paying the highest percentage in stock of all Spanish banks.
But additional banks will likely follow this strategy and implement this kind of option instead of paying cash. "With the prevailing cash shortage and the banks needing to bolster balance sheets, shareholders will be offered dividend payments in stock more and more," said Rafael Collada from MG Valores.
CaixaBank was one lender to incorporate this dividend strategy. They did it for the first time in June of 2011 when 95% of shareholders chose to accept stocks instead of cash. 98% accepted stocks as payment in October. These figures show that CaixaBank paid around 48% of its dividend with stock.