How To Add Up To 2.8% To Your Dividend Yield By Lending Out Your Shares

Dividends, the more the merrier. While you have no control how much dividends you are going to receive, you can increase your yield by lending out your shares to collect additional interest. This is known as the share lending program. The key benefits for lending out your shares are:

• Potentially enhances the yield of your portfolio
• No minimum lock-in period, you can sell the stocks you lent anytime you want
• No disruption to trading activities
• Hassle free lending arrangements handled by the CDP or your broker

As a trading representative, I often receive questions about the share lending program, and here are the 5 most common ones:

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#1 How Can I Lend Out My Shares?

There are two ways that you can lend out your shares. First is to participate in the CDP lending pool. Second is to activate the Share Borrowing and Lending (SBL) account with your stock broker and participate in the broker lending pool.

CDP Lending Pool

If your shares are held in CDP, you can simply submit this form to CDP. You will then participate as a lender in CDP lending pool. You will be notified by CDP if someone borrows your share. Do note that there is a minimum quantity or value before you can participate in CDP lending pool:

• For a security priced $1 or below, you must own a minimum of 10,000 units of that security; and
• For a security priced more than $1, you must own a minimum of $10,000 in value of that security.

Broker Lending Pool

If your shares are in your stock broker’s custodian account, you can simply open a Share Borrowing and Lending (SBL) account and submit a form to agree to lend out your shares. You need to submit the CDP share transfer form to transfer shares held in your CDP account to a custodian account in order to lend out your shares to broker lending pool. Please check with your broker if there is any minimum quantity or value to be eligible for lending. You can also lend out your foreign shares via the SBL account.

#2 How Much Interest Can I Earn?

The interest that you can earn depends on the lending rate and the lending duration. With effect from 2 December 2019, SGX has set the standard borrowing and lending rates for securities in the CDP lending pool. The borrowing rates will be 0.5% for index stocks, REITs and business trusts and for other securities at 4%. Lenders will receive 70% of the borrowing fee. For example: if you lend out $10,000 of non-index stocks for 90 days, you can get $69.04 (4% x 70% x $10,000 x 90 / 365).

Please check with your broker for borrowing and lending rates in the broker lending pool as the rates differ.

#3 Who Are Borrowing My Shares?

There are investors who are bearish and want to take up short positions against a particular stock. To short a stock, investors have to borrow shares from someone to sell in the market. When the share price drops, the short seller would buy the shares at a lower price and return them to the lender. There could be instances whereby investors need to borrow shares because they mistakenly sold more shares than what they own.

#4 Will I Still Be Entitled To Receive Dividends, Bonus Shares and Rights Issues?

Yes. Although there is a transfer of legal title to the borrower, you will remain as the beneficial owner of the shares. You will still be entitled to all the corporate actions such as dividends, bonus shares and right issues. You are also free to sell your share whenever you want to. However, you are not allowed to vote in AGM or EGM when your shares are on lending.

#5 What Are the Risks?

There’s a counterparty risk when you lend out your shares. In the event that the borrower is unable to return the shares, CDP or your stock broker will try their best to borrow shares from the lending pool to return to you. In the worst-case scenario, shares may be unavailable in the lending pool and you may have to receive cash as a settlement for the shares which you have lent out. Please read CDP FAQ here and check with your broker if you are in doubt about the risks of lending.

Summary

It is a good idea to lend your idling shares to get additional interest as you will still retain benefits such as dividends and other corporate actions. You also have the flexibility to sell the stock as there’s no lock-in period for lending out the shares. However, you should not lend out your shares If you wish to have voting rights, to attend AGMs and are concerned about the risks of lending.