What is a Scrip Dividend?

A scrip dividend is new shares of an issuer's stock that are issued to shareholders instead of a dividend. Scrip dividends may be used when issuers have too little cash available to issue a cash dividend, but still want to pay their shareholders in some manner. Scrip dividends may also be offered to shareholders as an alternative to a cash dividend, so that their dividend payments are automatically rolled into more shares.

Advantages of Scrip Dividends

The advantage for shareholders is that they do not have to pay any transaction fees, such as commissions, when acquiring new shares. This is also a modest way for the issuer of stock to save money by not paying cash dividends.

Example of a Scrip Dividend

A shareholder of Mighty Dove Company holds 10,000 of its shares. The firm’s board of directors passes a resolution to grant shareholders a $5 per share scrip dividend. On the date of the resolution, the price of the company’s stock is $100. Based on this information, the shareholder will receive 500 shares.