Scrips

Definition General Signed certificate, receipt, or an instrument that may serve as a private currency because (although it does not have any intrinsic value) it represents value recognized by both its issuer and the holder. Blacks law dictionary:

A document that entitles the holder to receive something of value. e.g money Scrip Issue A way for a company to save money but still pay a dividend is called a scrip dividend. This takes the form of a listed company creating more shares in the firm and giving them for free to existing shareholders. This is called a scrip issue. It is a form of secondary issue and could also be well described as a way for a company to capitalise financial reserves. Illustration Generally, a firm will pay one new share for a certain and fixed number of existing shares already owned. For example, this may take the form of one new share for every 20 held. This would be called a 1 for 20 scrip dividend. Therefore, if an investor owned 500 shares in a firm, and a 1 for 20 issue is paid, the investor would be entitled to 25 new shares. These are in addition to the current holding. Benefits

This is essentially a bookkeeping exercise and so the ROCE (Return On Capital Employed) should not change. A scrip issue does not change the value of a company and so an investors holding will be the same value before and after.

This is a rather ingenious way of offering a reward to shareholders without the need to actually release money. For some investors, it will offer a tax efficient way of receiving benefits from a holding.