Bottom Line: Dubious dividend

ENHANCED scrip dividends that are no more than disguised mini- rights issues and discriminate against non-taxpaying shareholders lack appeal. .

The enhanced scrip dividend from BSG International, the automotive and aviation components company, is equivalent to a one-for- 20 cash call. Shareholders will find this particularly hard to swallow given that the company held a one- for-four rights just 12 months ago.

The cash dividend is not covered by earnings. Apart from relieving gearing, BSG identified no plan for using the pounds 6m cash saved. Also, ignoring the effect of the pounds 31m rights last March, there would have been a cash outflow if the dividend had been paid in hard money.

By issuing more shares BSG will have to work harder for earnings per share growth from here on. Cash dividends will be more expensive in years to come as well.

BSG, what is more, does not have a large advance corporation tax surplus to claw back. Such surplus as it does have can be reclaimed by improving UK profits, and prospects look positive on this front.

The textiles company Coats Viyella struggled last week to justify payment of its scrip dividend. Where Coats struggled, BSG has not succeeded, as a 1.5p fall in its share price to 77.5p underlined yesterday.