Bottom Line: RTZ wins over the waverers

JUDGING by the response to RTZ's enhanced scrip dividend scheme, these tax-saving wheezes are a hit. Investors appear to have forgiven RTZ for launching the scheme after its shares had gone ex-dividend: 89 per cent of them have agreed to its offer of a 50 per cent increase in dividend in exchange for taking it in shares; and fewer than a fifth of those have taken advantage of Barclays de Zoete Wedd Securities' special dealing terms to swap the shares for cash.

Despite initial controversy, the outcome was never seriously in doubt. The advantages to RTZ - a boost to earnings of almost 3p a share and more than six points off gearing - outweigh any objections about the timing of the announcement.

Its ACT problem is structural rather than cyclical, given the scale of its overseas interests; its cash flow and balance sheet are strong enough for it to have little trouble in paying its dividend; and, although cover slipped below two in 1992, earnings are clearly back on an upward path.

Those advantages mean the scheme is likely to be waved through at today's annual meeting.

Other companies should not bank on such favourable treatment. BZW, which promoted the scheme, maintained from the outset that it could be used by only a handful of companies. Already eight have taken it up - BAT, Coats Viyella, Redland, BICC, Forte, Ladbroke and Jupiter Tyndall - although the last two were not promoted by BZW.

Of these, only BAT and, possibly, Redland share RTZ's structural ACT problem; for the others it will disappear as the British economy recovers. That makes it far more difficult for them to argue that it is anything other than a way of saving cash. Instead of falling for BZW's sales pitch, they should have faced reality and cut their dividends (further in the case of Forte) - some are still among the highest-yielders in the sector suggesting investors believe they could do just that.

That does not mean their schemes will be voted down. Institutions appear to be willing to back them because they are confident they will be a one-off; foreign income dividends, announced in the Budget, should soon be up and running. It does mean it will be difficult for others to jump on the bandwagon. Already, some schemes have been abandoned after informal soundings of shareholders; woe betide any company that ignores such warnings.