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Rights Issues, Scrip Dividends and Share Buybacks Explained

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Rights issues, scrip dividends and share buybacks explained for JSE investors: dilution, shares instead of cash, buyback rules and what each signals.

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If you’ve ever opened your app and seen a SENS announcement about rights issues, scrip dividends or share buybacks, you might have thought the JSE was auditioning for Generations. Here’s the drama, unpacked in plain South African English.

By The Money Maze | Listen to the episode: Spotify

All three are about the same thing: how many shares exist, and who gets the cash. A rights issue adds shares and pulls cash in. A scrip dividend adds shares instead of paying cash out. A buyback removes shares and pays cash out. Each one changes the size of your slice.

Rights issues: “can I borrow some sugar?”

A rights issue gives existing shareholders the chance to buy new shares, usually at a discount, before anyone else, in proportion to what they already own.

Picture this: you own 10% of a shisanyama. The owner says, “Bru, I need a new grill. Instead of going to the bank, buy another slice at a lekker price.” If you don’t, someone else will, and your share shrinks. That’s dilution, and it tastes like watered-down whisky.

Why companies do it:

  • To fund expansion or an acquisition.
  • To pay off expensive debt.
  • To survive. Sometimes a rights issue is a lifeline after things went badly wrong.

On the JSE, your rights are often tradable for a short period, so if you don’t want to take them up, you can sell them instead of letting them lapse.

Investor takeaway: ask what the money is for. If it’s growth, maybe join in. If it’s a bailout, think hard. Sometimes a rights issue is actually a wrongs issue.

Scrip dividends: shares instead of cash

Normally a dividend means cash in your account. With a scrip dividend, you get new shares instead. Usually you can choose between cash and shares, though some companies make shares the default if you don’t elect.

Companies do it to keep cash in the business while still rewarding shareholders. It’s like your mate saying, “I can’t pay back the R200, but here’s a slice of my start-up.”

Upside:

  • More shares without paying brokerage.
  • Useful for long-term investors who would reinvest anyway.
  • In South Africa, scrip or capitalisation shares can be taxed differently from cash dividends. Check the company’s tax notes in the announcement.

Downside:

  • More shares in issue means earnings per share can be diluted for everyone.
  • It can signal a company that’s tight on cash.
  • If you needed the income for petrol money, shares don’t fill the tank.

Share buybacks: the corporate glow-up

A share buyback is when a company buys its own shares, usually on the market, and cancels them or holds them as treasury shares. It’s like saying, “We’re so attractive, we’re dating ourselves.”

Why do it?

  • Fewer shares, bigger slices: each remaining share owns more of the company, so earnings per share rise.
  • Return cash flexibly: unlike a dividend, a buyback can be switched on and off without the market expecting it every year.
  • Signal confidence: management is saying it thinks the shares are cheap.

Naspers and Prosus are the JSE’s best-known buyback story. Since June 2022 they’ve run an open-ended programme: Prosus sells small amounts of Tencent shares to buy back Prosus shares, and Naspers sells Prosus shares to buy back its own. The aim is to shrink the discount between their share prices and the value of what they own. Prosus says that by September 2025 the programme had returned about US$42 billion to shareholders.

A quick buyback example

Say a company earns R100 million and has 100 million shares. Earnings per share is R1. It buys back and cancels 10 million shares. The business earns the same R100 million, but now there are 90 million shares, so earnings per share rises to about R1.11. Nothing about the business improved. Your slice just got bigger because there are fewer slices. That’s why you should always check whether EPS growth came from the business or from the buyback.

The JSE’s buyback rules

Companies need shareholder permission to buy back shares, usually through a general authority renewed at the AGM. Under the JSE Listings Requirements, a general repurchase is generally limited to 20% of the company’s shares in a financial year, and the price can’t be more than 10% above the recent weighted average. Larger or more targeted buybacks need specific approval.

When buybacks go wrong

If a company borrows heavily to buy back shares at high prices, that’s maxing out a credit card to buy a Gucci belt. Looks good now, ends in tears. A buyback is only as smart as the price paid.

What each one signals

  • Rights issue: “We need money.” Ask why.
  • Scrip dividend: “We’d like to keep the cash.” Ask whether that’s prudence or pressure.
  • Buyback: “We think our shares are cheap.” Ask whether they can afford it.

Stokvel Starter Pack

  • Rights issue: pay up or shrink your slice.
  • Dilution: your percentage falls when new shares are issued.
  • Scrip dividend: new shares instead of cash.
  • Share buyback: the company buys its own shares, shrinking the share count.
  • Treasury shares: bought-back shares the company holds rather than cancels.
  • General authority: AGM approval for routine buybacks or share issues.

Takeaway: Every one of these moves changes the size of your slice. Next time the SENS lands, you’ll know whether to grab your wallet, enjoy the freebie, or ask, “Why are you doing this, my guy?”

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More from The Money Maze

Sources

  1. JSE Listings Requirements, JSE Limited.
  2. Equity corporate action guide for retail clients, JSE Limited.
  3. Dividends Tax, South African Revenue Service.
  4. Share buyback programmes, Prosus.

This is not financial advice.

Transcript

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0:00 Welcome back to The Money MICE, the podcast for South African retail investors who want to stop feeling like they're drowning in jargon and start navigating the market like someone who actually knows what they're doing. I'm your host, Jay, and today we're tackling 3 terms that sound innocent but can turn your portfolio into a real soapy Rights issues, scrip dividends and share buybacks. If you've ever wondered why companies suddenly passed a hat around like they fundraising for a matric dance while they offer you shares instead of cash, like that one arm to insist on giving a pick and pay vouchers for your birthday, or while they start buying back their own shares like a taxi boss snapping up new routes, then this episode is for you.

0:43 Let's start with a rights issue. That's when the company offers its existing shareholders the right to buy more shares, usually at a discount, before offering them to anyone else. Translation, they need cash. Imagine your own 10% of Ashish anymore business so neither owner comes to you, hence his brew. A need to buy a new crow. But instead of taking a bank loan, how about you buy another piece of the pie at a lack of price?

1:10 Sounds fair, right? But use the twist. If you don't cough up, your shareholding shrinks because they'll invite other people in. That's called dilution and trust. Nothing tastes worse than diluted ownership. It's like watering down a really good whiskey. So why do companies do this expansion? They've got lands and they need some cash, maybe for debt repayment.

1:35 They've been living large and now it's time to pay back. Or survival like Cecil in 2020 when oil prices tanked and debt gave them sleepless nights. So key questions you should ask, should I take this up? Well, if it's for growth, maybe. If it's to keep the lights on, well, think twice. Sometimes it's not a right issue, it's a wrong issue.

2:00 Now let's do script student. Normally when a company loves you it sends you cash worth the script. They send you more shares instead. Why? Ohh because they want to conserve cash. It's like your mate saying I can't pay you back the 200 and I owe you but years of voucher for my startup. On paper it sounds really cool. You're compounding without lifting a finger.

2:24 But remember you were probably planning to use that cash for something important like petrol or a bully for the Bri. Now you've got paper gains and an empty wallet. The upside means more shares without any brokerage fees and it's good if you believe in the company long term. The downside earnings per share can drop because they are now more shares in circulation and you might not have a choice if they force the script on everyone.

2:51 Example being during COVID JC companies like banks used script dividends to keep liquidity high. It was the financial equivalent of giving IO using monopoly. Finally, let's look at share buybacks. When a company buys its own shares from the market, it's basically saying we so attractive we dating ourselves. Ohh. Why do they do it?

3:14 To reduce the number of shares in circulation, which boosts EPS if you remember that being earnings per share to return value to shareholders without declaring A dividend and to signal confidence in the business. An example of this being nice Patch has been on a buybacks spree trying to unwind that process. Puzzle Standard Bank also uses buybacks as part of capital return strategies. But here's the catch.

3:39 If a company uses debt to do this, it's like maxing out the credit card to look good and rich on Instagram. It might look good for a while, but it's most certainly not sustainable. So from an investor's point of view, how this affects you, a rights issue, Well, ask yourself if this is for growth or if it's a risk Commission. If it's the latter, your money could probably be better used elsewhere. Script dividends.

4:05 Great for long term holders, but if you need the actual cash, it's not exactly ideal. Buybacks is usually good news, but only if the company isn't playing financial gymnastics and it's time for your stockpile, starter pack or stock lingo for this episode 20 script issue ads. Basically pay up all your slight shrinks. Script evident free shares instead of cash.

4:29 Lacquer for compounding share buybacks. Her company reducing supply of shares. Often good for price unless they borrowing just to look fancy. Now when a sense alerted your inbox, you will know if you should grab your wallet, smile at all the freebies or ask why are you doing this smart guy? And then while my jokes may be more dead than actual dad jokes, remember this is not financial advice. Please do your own research, speak to a licensed advisor and I'll catch you next time when we dig into dual listings, delistings and why some companies pack for London.

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