Scrip Dividend
A scrip dividend (or flexible dividend) is a form of shareholder remuneration where the company lets you choose how to be paid: in cash or in new shares. Technically, the company hands out free allotment rights; you can use them to subscribe new shares, sell them back to the company (receiving a fixed amount, like a traditional dividend) or sell them on the market.
The format has been especially popular among Spanish blue chips: Santander, Iberdrola, Telefónica and ACS have all used it for years, sometimes under their own branding such as Iberdrola's "Flexible Remuneration".
How it works in practice
In each scrip round you receive rights in proportion to your shares and choose between three options:
- Sell the rights back to the company at a guaranteed price: equivalent to receiving the dividend in cash.
- Receive new shares: you increase your position without cash changing hands.
- Sell the rights on the market: you receive the market price of the right, which may differ from the guaranteed one.
The fine print: dilution
The key question is whether the company buys back and retires the newly issued shares. If it issues new shares without repurchasing, the total share count grows every year: your percentage of the company is diluted and earnings are spread across more shares. Taking "shares" without amortization is not a gift — it works like a small split combined with your own choice not to take cash.
Shareholder-friendly versions (Iberdrola is the usual example) combine the scrip with buybacks and share cancellation to keep the share count stable. Before judging a scrip positively, check that detail in the company's filings.
Why companies use it
A scrip lets a company preserve cash in years of heavy investment or balance sheet stress while keeping the appearance of a dividend. After 2008 it became the way several European companies avoided "cutting" dividends they could not fully afford in cash. That history explains the format's mixed reputation.
Tax treatment (orientative)
Treatment differs by option: selling rights back to the company is typically taxed like a dividend; selling rights on the market is usually a capital gain; receiving new shares generally defers taxation until you sell (lowering your acquisition cost). Rules change over time and by jurisdiction: verify the current treatment before filing.
Frequently asked questions
Is a scrip dividend better than a cash dividend?+
It depends on amortization. With buyback and cancellation it is a flexible, often tax-efficient way to reinvest. Without it, the "dividend" is partly paid through shareholders' own dilution.
What happens if I do not choose an option?+
Each program defines a default, usually receiving new shares. Watch the deadlines: the election window typically lasts about two weeks.
Does a scrip fit an income strategy?+
If you need the cash, always choose the sale back to the company. If you are in the accumulation phase, taking shares can make sense — while monitoring dilution and your average cost.