What is a Scrip dividend and why do companies make them?

A scrip dividend, also referred to as a scrip or stock issue, a stock dividend or a scrip alternative, is where a company offers its shareholders the choice between receiving:

1. •

   a cash dividend, or

2. •

   new Shares (usually) of equivalent value to the cash dividend

Scrip dividends are more common in difficult economic times when companies are hoping to reduce the amount of any cash dividend they have to pay out.

A shareholder may find a scrip dividend alternative appealing because they can acquire new shares without having to pay:

1. •

   broker's Fees, or

2. •

   stamp taxes

In addition, some companies offer 'enhanced scrip dividends' to encourage take up. An enhanced scrip dividend is where the value of the shares offered exceeds the value of the cash dividend.

There are some special tax Rules to deal with scrip dividends, which are explained in this Practice Note. This note considers the following tax issues:

1. •

   the meaning of stock dividend

2. •

   the taxation