Term · Capital Measures & Financing
Scrip Dividend
In briefA scrip dividend lets shareholders receive new shares instead of a cash payment. It preserves the company's liquidity but, if accepted, increases the share count and thereby dilutes holdings, which is especially relevant for capital-poor small caps.
Definition
A scrip dividend is a dividend in which shareholders can choose or receive new shares instead of a cash payment. For the company it preserves liquidity, but if accepted it leads to an increase in the number of shares and thus to dilution. It should be distinguished from a pure bonus share.
How it is calculated
Formula. New shares = elected dividend amount ÷ subscription price of the shares
Why it matters for small caps
For capital-poor small caps, a scrip dividend preserves cash but progressively dilutes the shareholders who choose the cash alternative.
Common misreadings
- A scrip dividend is seen as a free bonus, even though the additional shares dilute existing holdings.
In the process
Frequently asked
How does a scrip dividend differ from a cash dividend?
The shareholder receives new shares instead of cash; for the company, liquidity is preserved.
Why does dilution arise?
Because new shares are issued to service the dividend and the total number of shares increases.
Is a scrip dividend the same as bonus shares?
No. Bonus shares are issued without an election right and without reference to a distribution.
Related terms
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.