Scrip Dividends and Dividend Reinvestment Plans

Instead of mailing a check, a company can offer shareholders new shares in place of a cash dividend — this is a scrip dividend. The company issues the shares directly, usually valued at a small discount to the market price, and the shareholder ends up with more shares and no cash. A Dividend Reinvestment Plan (DRIP) achieves a similar end result by a different route: the cash dividend is still paid, but it's automatically used to buy additional shares, often through the company's transfer agent or a brokerage, sometimes commission-free and at a modest discount.

The practical differences matter for taxes and mechanics. A scrip dividend is typically still taxable as dividend income even though no cash changes hands, so a shareholder can owe tax on a payment they never received in spendable form. A DRIP purchase usually happens at the prevailing market price rather than a discount set by the company, and the shares bought are simply additional shares with their own cost basis for later capital-gains accounting.

For a company, offering scrip is a way to retain cash — shareholders who take shares instead of cash leave that money inside the business — which is why scrip dividends tend to appear more often when a company wants to conserve liquidity without formally cutting its dividend.