What is a scrip issue?
A scrip issue is an offer of free shares to current owners of a company's stock. It’s a way for firms to save cash but still provide an income to shareholders as an alternative to paying a dividend.
Key takeaways
A scrip issue (also called capitalisation issue or bonus issue) is an offer of free shares to current shareholders, serving as a cash-saving alternative to paying dividends while still providing shareholder income.
Additional shares are issued proportionally to each shareholder's stake; for example, in a one-for-20 scrip issue, owning 500 shares would entitle you to 25 new shares (500 x 1/20 = 25).
This type of secondary issue increases shares in circulation to boost market liquidity and reduces the stock price, making it more affordable for retail investors.
The increase in share count can result in a reduction in dividend per share in the future, which is a factor that doesn't go down well with shareholders.
Where have you heard about scrip issues?
Also known as a capitalisation issue or bonus issue, a scrip is a type of secondary issue that increases the number of shares in circulation to boost liquidity in the market.
What you need to know about scrip issues.
Generally speaking, additional shares are issued proportionally according to each shareholder’s stake in the company. For example, a one-for-20 scrip issue entitles each shareholder to one new share for every 20 held. So, if you own 500 shares in a company, you’d receive 25 new shares (500 x 1/20 = 25).
Increasing the number of shares has the effect of reducing the stock price, making the stock more affordable for retail investors. But it can also result in a reduction in dividend per share in the future, a factor which doesn't go down too well with shareholders.