Scrip Dividends — choose Cash, sure Lose?

Everyone might be familiar with the paradox of the Prisoners’ Dilemma — one of the most popular concept in modern game theory in Economics. By nature, individuals tend towards acting in or protecting their own interests, by not cooperating with one another, they tend to find themselves in a worse state than they would have by cooperating.

I wrote about understanding Scrip Dividend Scheme better in a previous article. Scrip issue usually enlarges the company’s share capital base, through the creation of new shares. New shares lead to share dilution, potentially. Existing shareholders faces share dilution if they opt for cash over scrip. Shareholders who opt for scrip over cash minimally maintain or increase their stake (depending on the subscription rate) at the expenses of the earlier camp.

There is no right or wrong; the decision on choosing scrip over cash dividends or vice-versa is entirely an investment decision depending on what you plan to do with the counter in the future.

Similar to the Prisoners’ Dilemma, we can look at 4 outcomes from the Investors’ Dilemma. One of the common consideration to investors when presented with a choice of scrip versus cash — How will I lose out? What do I stand to gain from one over the other?

Scenario 1 — ALL shareholders opt for cash. No cash dividend is retained in the company. No new shares are created, and shareholders see no change in their shareholdings.

Scenario 2 — ALL shareholders opt for scrip. Cash dividend is fully retained in the company to strengthen its working capital position. New shares are created, but shareholders still maintain the same stake in their shareholdings.

Scenario 3 — A mixture of scrip and cash is chosen. Scenario 1 and 2 are highly unlikely to happen. Scenario 3 is the most common, but it usually skews towards one of the extreme Scenarios 1 or 2 depending on the attractiveness of the discount to current market price.

From an investor’s perspective, the best scenario happens when everyone chooses cash dividends, though it being a ‘detrimental’ one for the company. Everyone ‘loses’ in a sense if everyone chooses scrip — you seemed to have received value when you don’t actually have.

How much do investors who opt for cash over scrip actually lose out?

A case example — Oversea-Chinese Banking Corp (O39)

Among the 3 listed Banks in Singapore, OCBC has the greatest propensity to offer scrip dividend over the years — the 15th time since the Global Financial Crisis in 2009. With a dividend of 15.9 cents per share, it would cost the bank $700 million in cash (representing 49% of the Group’s 1H2020 net profit) for 1H 2020 dividend distribution. A participation rate of 80% by shareholdings means that OCBC could potentially preserve $140 million for working capital.

The participation rate has been healthy over the years, by consistently offering a 10% discount on the final weighted average price over a referenced time period. Between 70% – 85% of shareholdings have opt for scrip over cash and even then, the percentage of new shares created is roughly 1.5% – 2.0% each time.

PeriodParticipation rate
(% of shareholdings)
% increase
(in ordinary shares)
Interim 2020Yet to knowYet to know
Interim 201976.62.0
Final 201870.51.5
Interim 201876.21.5
Final 201578.91.7
Interim 201579.21.6
Final 201482.81.6
Interim 201484.11.5
Final 201383.01.6
Interim 201180.41.5
Final 2010Data not availData not avail
Interim 201080.81.5
Final 2009Data not availData not avail
Interim 200980.81.6
Final 2008Data not availData not avail

To the common retail investors, yes there is share dilution experienced, but the dilution is negligible when compared to rights issue or secondary public offering. We can see from the following table the % dilution should one opt for cash over scrip when new shares are issued.

% increase
(in ordinary shares)
% dilution
(in stakeholding)

For this round, all 3 listed local banks have offered scrip dividends. Even if all shareholders opt for scrip over cash, the percentage of new shares increase amount to only DBS (0.8%), UOB (1.6%), OCBC (2%).


In all likelihood (referencing to previous Scrip Dividend exercises), many shareholders are going to subscribe for scrip for OCBC, unless they need cash urgently or unable to exercise for scrip (e.g. custodian account). Shareholders who do not would obviously “lose out”, though the effect is not as apocalyptic or worrying as some have put it. In fact, these same said investors could still increase their stake later on by buying more in terms of board lots (with their cash dividends and cash) instead of receiving odd lots now.

The Investors’ Dilemma, even if it holds some truth, is that investors who act alone may find themselves in a worse state than they would have by cooperating; but worse state is subjective and the effect itself is only marginally negative.

Leaving behind a Legacy for your Child, via his CPF SA top-up

While CPF SA Shielding and OA Shielding — A Live Example is more applicable to more senior adults who are nearing the age where RA is formed at .age 55, there is a group of people who are believers in giving a kick-start to their children’s CPF retirement planning early by inculcating transferable and manageable savings and investment habit or even leaving behind a legacy through their child’s CPF.

This includes myself, who strongly believes in the power of compounding your child’s SA from young.

Not everyone realise this — All Singapore Citizen newborns automatically have / can create a CPF account. Newborns born on or after 1 January 2015 also qualify for the enhanced $4,000 MediSave Grant for Newborns, which gives a great start in an account that earns 4% interest annually. The first $60,000 of combined balances (with up to $20,000 from the OA) earns an extra 1% interest. This is the most crucial point: Monies in the SA or MA potentially earn 5% on the first combined balances, assuming OA remains zero.

Some people are on the other side of this camp due to the following reasons:

  • Liquidity is one consideration. Monies given towards the child’s CPF account is “locked” till retirement age, in exchange for the higher earning interest rate. Alternative instruments where liquidity are more assured such as equities, saving deposits, endowment plans etc are out there.
  • Policy changes is another risk. This includes the interest rate for OA/SA/MA, increasing FRS amount over the years, as well as age of withdrawal. The policy that is applicable today may not be applicable during their time.

Uncle Jack James is a practitioner in this field. Uncle Jack is 40 this year. He has been pledging about $6,000 annually to his son’s CPF SA account since the birth of his son. As of April this year, Uncle Jack’s son already has a combined $28,095 in his SA/MA account earning a good 5% interest on the first $60,000.

And a further simulation is done for the future on just top-ups and interest earned only. This has not included his son’s further employment contribution (from both employer and employee). We can see a fair good projection of $417,000 at age 55. This is also one of the point I wanted to emphasis — inculcating transferable and manageable savings and investment habit. Some people assume that the top-ups by parents is perpetual, but NO!

Once your child is old enough and financial savvy to understand the benefits of what is going on, sometimes it is also encouraging to look at historical trends and entice him to continue this “forced savings” habits early on in life.

Uncle Jack James is also no stranger in maximising the dollars earned from CPF; he does annual RSTU cash top-up to his SA account, as well as the occasional OA to SA transfer. With this, he has already reached FRS amount early in life, well before his retirement age.

Similarly, another parent Uncle Noel Tan has a similar idea of leaving behind a legacy, via RSTU on his own CPF account, as he believes what he saves up (and not used) in his own account will go towards his children (beneficiaries) eventually.

In the end, there is no right or wrong answers — to each his own strategy. My area of contend or focus is to quickly reach the first $60,000 for my children, which makes the most sense to get the extra 1% interest rate early (if you can afford to). Also as financial savvy adults, after setting aside your retirement saving funds, emergency savings, investment funds or even your children education funds, it absolutely makes sense if you have the means to and no where else to put your extra monies.

One last but additional point to note: Only mandatory and voluntary contributes can be withdrawn in excess of FRS (or BRS amount with property pledge) at age 55. This includes OA to SA transfers. RSTU cash top-ups cannot be withdrawn even if this is in excess of FRS amount.

CPF SA Shielding and OA Shielding — A Live Example

Almost one year ago, I wrote an article on CPF SA Shielding before RA is formed at .age 55. It is one of the several legit CPF Hacks that any Singaporeans can employ to maximise their CPF dollars to go towards their retirement funds. While we hear all the theory online, part of us is constantly thinking — are there actually people who are doing CPF Shielding for their SA or OA? Does SA Shielding work in reality? We don’t get many live examples because the people who do share willingly are just a numbered few.

Uncle X is 55 on this year and month on the 28th Sep.

Uncle X has been going his thought process in maximising the CPF hacks for OA and SA Shielding since early last year.

Uncle X has planned and perfected his execution of CPF SA and OA shielding for this very important moment of his life.

Uncle X is invested in low-cost funds during the period of shielding, which translates to shielding roughly $484,200 of OA monies and $221,400 of SA monies. This is honestly alot of monies, if you ask me, for continuing earning higher interests (2.5% and 4%) and almost risk-free.

Lorna had shared this CPF SA Shielding hack back in the Straits Times a year back.

Some quick pointers from the resulting sharing by Uncle X and the key take-aways:

Does OA and SA monies go back respectively to OA and SA accounts after the two funds are sold or divested?

Yes, technically we call it “SA or OA deshielding” or putting down the shields respectively for OA and SA accounts. Whatever investment was bought using OA and SA monies will be respectively returned back to the same accounts. The automatic transfer of SA/OA monies to set up RA account only take place once in your lifetime — the day when you turn 55. Any other SA/OA transfers to RA account is manually triggered.

Is it worth performing the CPF SA Shielding or OA Shielding hack for the cost involved?

It would be worthwhile to compare brokerage costs. For POEMS, Dollardexs and FSMOne for example, the net sales charge or commission is zero.

CPF SA Shielding is the first consideration in the past, due to higher interest earned in the SA (4%) versus the OA (2.5%). What is the rationale and why are people doing OA Shielding as well?

When RA is created, it is created first with monies from your SA account, then OA account in that order of priority. The main aim of SA Shielding, is therefore to “protect” the bulk of your SA from getting transferred over to RA.

The idea of shielding BOTH CPF SA and OA however, is to minimise the monies that gets transferred to your RA when it is created at age 55. The lowest you can go is $60,000 ($20,000 from CPF OA and $40,000 from CPF SA).

Monies in the RA has the least flexibility — it could only be used as premiums for CPF LIFE. Monies in the OA has the highest flexibility — it could be used for CPFIS investments, purchase and monthly installments of property. When BRS (with property pledge) or FRS amount is met in the RA account, the excess amount residing in the CPF SA and OA could be withdrawn as cash, at any time. This is the next reasoning why people would rather keep more of their CPF monies in OA/SA rather than RA.

The last reason, especially for those who are cash-rich, is that by having the bare minimum in RA, you have a wider range to do RSTU cash top up to RA all the way to prevailing FRS or even ERS amount. You would then enjoy the relating tax reliefs!

What if I shield my SA and OA such that RA created has less than BRS amount? Will I not be entitled to CPF LIFE?

Firstly like I mentioned from the earlier question, RA created can go to as low as $60,000 with maximum shielding for CPF SA and OA. You will be auto enrolled in CPF LIFE if you have at least $60,000 in your RA six months before reaching Payout Eligibility Age (PEA). Anything below $60,000 you will remain on the Retirement Sum Scheme (RSS). And if you were on RSS, we would not be talking about CPF Shielding in the first place.

Can we continue to transfer OA to SA after age 55?

The simple answer is No. After age 55, only OA/SA transfers to RA is allowed. CPF OA to SA transfers can only happen before age 55 or before RA is created.

What is the most important consideration in the execution of the CPF Shielding?

After you carry out SA or OA shielding, you are also planning the next steps on deshielding. You would want to deshield as soon as your RA is created to continue earning OA and SA interests, e.g. you would try as best as possible not to miss another month of interests earned as the amount could be quite substantial if your OA and SA has large numbers. Timing is of importance, especially for people whose birthdays (or they turn 55 years of age) near the end of the month.

Uncle X’s birthday is on the 28th Sep, thus he would plan to bring down his shielding either on the 29 or 30 Sep. Once it crosses to the next month e.g. 1 Oct, he would have lost another month of interest for October. Interests earned for CPF accounts are based on the lowest balance in your SA/OA for the month.

Retail play in China — which REIT to focus on?

As of Sep 2020, there are 4 REITs / Business Trust that focus on retail play in China.

Dasin Retail Trust is highly focused in the Greater Bay Area, while the other three are spread out among Tiers 1 and 2 Chinese cities.

REIT / Business TrustNo. of
(RMB $bil)
CapitaLand Retail
China Trust (AU8U)
Sasseur REIT (CRPU)48.21.6
BHG Retail REIT (BMGU)64.70.9
Dasin Retail Trust (CEDU)711.72.3

China’s Economic Progress from COVID-19

China was the first major economy to emerge from COVID-19 with positive economic growth — Q2 2020 GDP recorded a positive growth after a woeful Q1 2020, growing 11.5% quarter-on-quarter and 3.2% year-on-year, from a 6.8% year-on-year decline in 1Q 2020.

Disposable income per capita grew 1.5% year-on-year in 1H 2020 for urban residents. While retail sales for consumer goods fell 11.4% year-on-year (to RMB 17.2 trillion) for 1H 2020, it recovered to -1.8% year-on-year in June 2020.

Although there was a brief resurgence of Second wave in Beijing on 10 June — breaking a 56-day streak of no locally transmitted cases and one day after the discharge of the last active Covid-19 case from a local hospital — this second wave was quickly quelled by 6 July. This further boosted and brought back confidence in the economic recovery. The Government had demonstrated that it had learnt from its lessons on swift and decisive measures to bring any outbreak quickly under control.

China had brought a whole stew of economic stimulus which were beneficial to the entire nation. These include, required reserve ratio reductions, interest rate cuts, and re-lending to enable M2 money supply and aggregate financing. Other fiscal and support measures were also announced in 1H 2020, which include reduction of property tax, land use tax, social security fund contribution, utilities etc.


  • Government introduced monetary and fiscal policies to stimulate economy to grow at notably higher rates than last year
  • Cut banks’ reserve requirement ratios and interest rates
  • Accelerated investments in high-tech infrastructures and urbanisation
  • Improve the social security system and income distribution
  • Reduced business costs by including periodic tax exemptions and providing subsidies


  • Announced the end of peak COVID-19 outbreak
  • Encouraged enterprises to resume work and production: Most companies returned to work by late-March, with more than 90% of manufacturing plants starting production and around 60% of employees back in office
  • Launched consumption campaign to encourage citizens to “Relax, Eat Out and Shop”, issuing digital coupons to stimulate consumption


  • Lifted all remaining transportation curbs and border restrictions in Wuhan
  • Reopened schools in China’s biggest cities


  • Government earmarked “Six Priorities” at the Two Sessions meetings to focus on employment, basic livelihood, companies, food and energy security, stable supply chains and smooth operation of government
  • PBOC, CBIRC, CSRC and SAFE jointly issued a total of 26 specific measures to promote trade and investments in the Greater Bay Area

Note: PBOC — People’s Bank of China, CBIRC — China Banking and Insurance Regulatory Commission, CSRC — China Securities Regulatory Commission, SAFE — State Administration of Foreign Exchange

Comparison of the 4 China-focused retail REITs / Business Trust

Gearing Ratio

Due to COVID-19, MAS had raised the regulatory gearing limit to 50% from 16 April 2020. Previously 45%, REITs generally keep their leverage to within 40% maintaining a 5% buffer to respond to ever-changing market conditions e.g. declining property prices.

Sasseur has the lowest gearing among the four, with CapitaLand Retail China Trust closely behind. Their stronger balance sheets position them better with more debt headroom to implement Asset Enhancement Initiatives (AEI) leading to higher operational yield or to acquire more DPU-accretive assets.


All four are generally undervalued, which means you are paying discount (at the current share price) for the underlying net assets. Dasin Retail Trust and BHG Retail Trust are comparatively the most undervalued currently. However, Sasseur, Dasin and BHG have been in the average of the range for the past 5 years.

CapitaR China is almost near the bottom (16.9%) for the P/NAV range, in which it has never been so undervalued before in the last 5 years.

Trailing Twelve Months (TTM) Yield

The TTM Yield provides the recent history of distribution payouts to investors. For example, if a REIT’s TTM Yield is 5.00%, it would have paid out $5,000 to an investor that has $100,000 invested during the previous year.

Sasseur and CapitaR China leads with the highest TTM Yield. BHG and Dasin are poor at under 5%, and considering that this has included the distribution waiver by strategic investors, they could have fared even worst. I will come to it later on why I dislike distribution waiver.

total returns
CapitaLand Retail
China Trust (AU8U)
Sasseur REIT (CRPU)-9.04.7NANANA
BHG Retail REIT (BMGU)-15.7-15.7-2.3NANA
Dasin Retail Trust (CEDU)-1.8-0.48.5NANA

CapitaLand Retail China Trust has the longest history thus far, with the other 3 being relatively newer. Over the last 10 years, shareholders would have enjoyed an annualised 7% returns by holding on to this REIT. Though past performance is not indicative of future performance, I see this big drop in share price now as an opportunity for myself to get onboard.

Waiver of Entitlement to Distribution

Honestly from my personal investment perspective, I disliked this point about distribution waiver, and here is why.

Distribution waiver is initiated usually from the Strategic Investors or Majority Shareholders to provide some initial financial support to the REIT. The waiver is active during the distribution waiver period (usually a few years from IPO) — any dividends will be paid out as normal to non-waived shareholdings; while ignored for waived shares, the allocated dividends is re-distributed to non-waived shareholdings. The proportion of waived shares gradually decrease throughout the waiver period.

Distribution waiver is a reflection of major unitholders’ confidence in long term income growth and for the benefit of other unitholders. However, for the regular investors who do not read in depth into the IPO prospectus or annual reports, the annual distribution per unit (DPU) seemed to be artificially held higher during the waiver period.

Dasin Retail Trust — Major unitholders Aqua Wealth (348,719,572 units or 53.76% direct interest) and Bounty Way (28,208,759 units or 4.35% direct interest) agreed to waive a portion of its entitlement to distributions over a period of approximately five years, commencing from the Listing Date to 31 December 2021.

DPU (c)2017201820192020
W waiver7.167.226.821.92 (1H)
W/O waiver3.253.813.951.35 (1H)

The DPU has been kept average or slightly falling. Without the waiver support, the true dividend yield is almost 40% lower.

BHG Retail REIT — Major unitholder Beijing Hua Lian Group (Singapore) International Trading (148,310,300 units or 29.11% direct interest) agreed to waive a portion of its entitlement to distributions over a period of approximately five years, commencing from the Listing Date to 31 December 2020.

201620172018 20192020
S$ mil5.
DPU (c)20162017201820192020
W waiver5.325.165.473.870.89 (1H)

Similarly, even with the waiver, DPU has been falling. The true dividend is much lower.


REITs are primarily invested for income, not growth or capital gains. Hence I would be concerned with whether my investment is providing me with a steady and increasing DPU over time. I would personally not be vested in BHG Retail REIT and Dasin Retail Trust for now, till the distribution trend over time “without the distribution waiver” becomes clearer.

There are concerns that China’s Q2 2020 GDP growth was driven by pent-up demand from the population and may not repeat the same level of performance going forward. In addition, the growing popularity of e-commerce continues to threaten brick and mortar retail demand. I opined however that the dense population in China is able to support both offline and onsite demand for goods and services. With disposable income per capita rising, we can expect more retail spending to take place, given time.

CapitaLand Retail China Trust and Sasseur REIT are both strong in their respective areas of retail malls and outlet malls. I would continue monitor both closely for opportunities to enter more units, with a higher emphasis on CapitaR China.