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Many companies offer you the opportunity to take your dividend in the form of more shares in the company rather than cash. This is known as a ‘scrip dividend’. The company will say in its results announcement whether it offers a scrip dividend.

Not all companies offer this option and it may not be available to you if you run an online account where shares are held in a nominee account. Check with your broker whether you will be able to elect to receive scrip dividends.

Basic rate income tax will still be deducted from the dividend before the number of scrip shares due to you is calculated according to the level of the cash dividend and the stock market value of the shares. New shares will be issued accordingly.

If, as is likely, the amount of the dividend is not divisible exactly by the share price and there is a fraction of a share left over, the difference is – depending on the particular terms of the scheme – paid to the shareholder, added to the next dividend, retained by the company, or given to charity.

If scrip dividends are issued to a company in your ISA account, the new shares qualify for tax relief under the ISA scheme.

Scrip dividends are attractive if:

 You want to build up your investments.

 You have a range of investments and are not looking to diversify into more companies.

 The company is doing very well and you are happy to keep on investing in it.

 You do not consider the shares to be overpriced.

Scrip dividends are not attractive if:

 You want income to live on now.

 You want to widen your portfolio.

 Your portfolio is already weighted too heavily in shares in this particular company or the sector it operates in.

 You feel that there are more attractive prospects elsewhere.