What is dividend rights issue?

A dividend rights issue is when a public company sells new shares in return for cash. Shares are usually offered at a discount price within a set time frame to encourage existing shareholders to take up the rights. They have first refusal for the shares.

Where have you heard about dividend rights issue?

A dividend rights issue is an example of a corporate action. Companies typically offer more shares to raise extra capital. This could be for a number of reasons, such as to pay off debt, buy new equipment or acquire another company. In 2010, Brazilian oil company Petrobras raised almost $70bn in what was at the time, the largest ever rights issue.

What you need to know about dividend rights issue.

You’ll be notified by a broker if you have the option to subscribe for extra shares. If you don't want more shares, you can sell your rights in the open market.

Ignoring a rights issue isn't recommended, as your shareholding in the company will weaken due to extra shares being issued and you'll be diminishing future dividend payments.

Buying discounted shares is a tempting prospect, but it’s important to find out the reason for the rights issue before taking the plunge and purchasing more stock.