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Whether the word scrip is derived from a scrap of paper or an abbreviation of subscription, the meaning is memorable enough; scrip dividends are an alternative of taking further shares in the company in place of a cash dividend. ^[17] A client will often be asked to decide as a matter of policy if they wish to receive scrip dividends (if offered) rather than the cash dividend when they first sign up with a stockbroker. However, ongoing arrangements like this are really a time saving convenience for the stock broking service and its clients; as far as the issuing company is concerned the shareholder normally has a choice between taking the scrip shares or the cash dividend. In the language of corporate actions they make an “election”.

Scrip dividends are fairly common but by no means universal. For UK shareholders, receiving a scrip dividend has income tax implications.

Scrip dividends should not be confused with DRIPs (Dividend Reinvestment Plans) – arrangements for shareholders to have their dividend spent on the purchase of more shares in the company. The difference is that shares for a DRIP are bought on the stock market and the (small) charges are deducted to cover stamp duty and dealing costs. Using a DRIP facility is not a corporate action in itself, merely a service provided by some issuers once the dividend payment has been made.