Scrip Dividend

Scrip Dividend Meaning

Scrip dividends, also known as liability dividends, 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 dividends when they have insufficient cash to pay as a dividend.

For example, a shareholder owns 1000 shares, and the company paid one 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 claim is $800 per share, then the shareholder will receive 25 shares under the scrip dividend scheme. How? Let us find out:

Solution:

Calculation of scrip dividend can be done as follows:

Scrip Dividend Example

No. of Shares Under Scrip Dividend = 1000 Shares* $20/$800 = $20,000/$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

A scrip dividend is issued by the company when the company wants to give a dividend but it does not have the cash for making payment of dividends, or it wants to invest the available cash for 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 a negative sign to the market about the company. Investors do not want to invest in the company because they are not getting a cash dividend. They feel their money will get blocked as the company’s financial condition is not well or it does not have a cash crunch. Sometimes the company’s share price also reduce.

It has been a guide to what scrip dividend is, 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 valuable accounting articles here:-

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