Scrip Dividend

Scrip Dividend Meaning

Scrip dividend, also known as liability dividend, are issued by the company to its shareholders in the form of a certificate instead of the cash dividend that provides a choice to its shareholders to get dividends at a later point of time or they can take shares in place of dividends. Companies issue such dividends when they do not have a sufficient amount of cash to pay as a dividend.

E.g., A shareholder owns 1000 shares, and the company paid 1 share against 50 shares owned by a shareholder. Here the investor will get 20 shares as a scrip dividend.

How to Issue Scrip Dividend?

Let us discuss the process of issuing this dividend in detail –

Number of Shares Held at Record Date * Cash Dividend per Share / Reference Price of Share

Example of Scrip Dividend

If a shareholder holds 1000 shares and the dividend per share was $ 20 per share declared by the company and the reference price of the share is $ 800 per share, then the shareholder will receive 25 shares under the scrip dividend scheme.

Solution:

Calculation of scrip divided can be done as follows:

Scrip Dividend Example

No. of Shares under Scrip Dividend = 1000 Shares * $ 20 / $ 800 = $ 20000 / $ 800 = 25 Shares

Advantages

Some of the advantages are as follows:

Disadvantages

Some of the disadvantages are as follows:

Important Points

Some of the essential points are as follows:

Conclusion

Scrip Dividend is issued by the company in a situation where the company wants to issue a dividend, but the company does not have the cash for making payment of dividends, or the company wants to invest the available cash into the growth of the business, capital expenditureCapital ExpenditureCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more or any other purpose. But at the same time, it gives the negative sign to the market about the company and investor does not want to invest in the company because they are not getting cash dividend and they feel their money gets blocked, and company financial condition is also not well, and the company has a cash crunch and sometimes share price of the company is also reduced.

This has been a guide to what is scrip dividend and its meaning. Here we discuss how to issue scrip dividends along with an example, advantages, and disadvantages. You may also take a look at some of the useful economics articles here:-

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