Scrip Dividend
A dividend program that gives shareholders the choice to receive new shares instead of their cash dividend entitlement.
What is Scrip Dividend?
A scrip dividend (also called a stock dividend alternative or dividend reinvestment option) is a corporate program in which shareholders are given the choice between receiving their declared dividend in cash or in the form of newly issued shares at a price close to the prevailing market price at the time of election. Shareholders who elect the scrip option receive shares whose aggregate value approximates the cash dividend foregone. Scrip dividends conserve the company's cash while still rewarding shareholders, and can be tax-efficient in certain jurisdictions where receiving shares rather than cash defers a taxable event. They are most common among capital-intensive companies, banks, and resource companies that periodically need to preserve cash for investment or regulatory capital requirements.
Example
Following the Deepwater Horizon oil spill in April 2010 and the subsequent suspension and later reinstatement of its dividend at a lower level, BP plc offered shareholders a scrip dividend program from 2010 through 2012. Rather than paying full cash dividends—which would have strained BP's balance sheet during a period of $20–$40 billion in settlement costs—BP invited shareholders to elect new BP shares in lieu of cash, conserving an estimated $5 billion per year in liquidity while maintaining uninterrupted shareholder distributions.
Source: BP Annual Report 2011