Scrip dividend

A scrip dividend is a scrip issue made in lieu of a cash dividend. Shareholders are able to choose whether to receive a cash dividend or shares. This is the difference between a scrip dividend and a scrip issue.

Shareholders who wish to reinvest will prefer a scrip dividend to a DRIP as it avoids dealing costs, and the number of shares received is known at the time the election to receive shares rather than cash is made. In the case of a DRIP, the number of shares bought will depend on the share price on the day of the purchase itself.

It is common to allow shareholders to choose to receive only part of their dividend as shares, and the rest as cash.

In the UK, at the time of writing (2012) a scrip issue is taxable as income in the same way as a cash dividend. This is another significant difference from a scrip issue.

As with any scrip issue, the shares issued to pay a scrip dividend need to come from the capitalisation of reserves.

A scrip issue is a new issue, although a single script issue is likely to be very small compared to, for example, a rights issue.

Copyright Graeme Pietersz © 2005-2020