Dividend Rights Issue

A dividend rights issue occurs when a company offers its shareholders the option to purchase additional shares at a discounted price, often as an alternative to receiving cash dividends. This can provide shareholders with the opportunity to increase their ownership in the company, while allowing the company to retain cash that might otherwise be paid out as dividends. This approach can be advantageous for both the company, which can strengthen its balance sheet, and shareholders, who get discounted shares and may benefit from future growth. However, it also dilutes the ownership of those who don’t participate.

Example

A company offers shareholders the choice to receive either a cash dividend or buy additional shares at a discounted price through a rights issue.