Key Takeaway: A scrip dividend is a form of dividend payment in which companies issue new shares instead of cash to shareholders.
What is a Scrip Dividend?
A scrip dividend is when a company issues new shares to shareholders instead of paying cash. Shareholders can choose to receive additional shares instead of a monetary dividend.
How Scrip Dividends Work
- Declaration: The company declares a scrip dividend option alongside or instead of a cash dividend
- Election: Shareholders elect to receive shares or cash
- Valuation: New shares are issued at a specific price, usually based on recent trading prices
- Issuance: Chosen new shares are credited to shareholder accounts
Types of Scrip Dividends
- Mandatory Scrip: All shareholders receive shares instead of cash
- Optional Scrip: Shareholders choose between cash and shares
- Partial Scrip: Dividends paid partially in cash and partially in shares
Scrip Dividend Advantages & Disadvantages
For Companies
| Advantages | Disadvantages |
|---|---|
| Conserves cash | Dilutes existing shares |
| Reduces debt burden | May reduce dividend perception |
| Funds growth initiatives | Requires shareholder approval |
For Shareholders
| Advantages | Disadvantages |
|---|---|
| No immediate tax | Share dilution |
| Compounding potential | Must manage more shares |
| Capital appreciation | Market risk exposure |
Scrip Dividend in Singapore Context
Singapore companies often use scrip dividends to manage cash flow during growth phases. Common in REITs and dividend stocks.
Tax Treatment in Singapore
- Scrip dividends are taxable as dividend income
- Taxed at the same rate as cash dividends
- Cost basis for capital gains = issue price of scrip shares
Real-World Examples in Singapore
Example 1: MPACT (M&G Prudential Asian Credit Income Fund)
MPACT regularly offers scrip dividend options to unitholders. In 2024-2025, unitholders could choose cash distributions or reinvestment in additional units.
Example 2: CICT (CapitaLand Integrated Commercial Trust)
CICT has offered optional scrip dividends during strategic reinvestment periods. This allows shareholders to increase their stake without purchasing additional units on the open market.
Example 3: SIA (Singapore Airlines)
During recovery periods, SIA offered scrip dividend options to conserve cash while rewarding shareholders with share ownership opportunities at discounted rates.