Scrip dividend: taking your payout in shares

Not every dividend is paid in cash. With a scrip dividend, a company gives you extra shares instead. This guide explains what a scrip dividend is and how it works for shareholders.

Quick answer

A scrip dividend is a dividend paid in the form of extra shares instead of cash. The company gives shareholders new shares in place of a cash payout, letting it keep the cash inside the business. A scrip dividend increases your share count rather than paying money into your bank account.

Key takeaways

• A scrip dividend pays you in shares, not cash.
• It lets the company keep cash in the business.
• It increases your share count.
• It is different from a normal cash dividend.
• Sometimes shareholders can choose cash or shares.

What is a scrip dividend?

A scrip dividend is a dividend that a company pays by issuing extra shares instead of paying cash. So rather than money reaching your bank account, you receive additional shares in the company.

This lets the company reward shareholders while keeping its cash for use in the business. For the shareholder, the payout shows up as more shares rather than as money.

How does a scrip dividend work?

When a company declares a scrip dividend, it works out how many new shares each holder receives based on their existing holding and the value of the dividend. The new shares are then credited to your demat account.

In some cases, the company offers a choice: you can take the dividend in cash or in shares. This is sometimes called a scrip or a stock option dividend, letting each shareholder pick what suits them.

How is it different from a cash dividend?

So the key difference is form. A cash dividend gives you money, while a scrip dividend gives you more shares and keeps the cash inside the company.

Why do companies use scrip dividends?

Companies use scrip dividends to reward shareholders without spending cash, which can be useful when they want to preserve money for growth or to manage their finances carefully.

For shareholders who want to build their holding over time, receiving shares can suit them. Those who prefer income may favour cash, which is why a choice is sometimes offered.

What should shareholders consider?

Taking shares increases your holding but does not put cash in your pocket, so it suits long-term building rather than income. Any tax treatment depends on the rules at the time, so check the current position.

A scrip dividend is one of several ways companies return value, alongside cash dividends and a stock dividend. Any investment decision should be your own after proper research.

Frequently Asked Questions