List of companies paying scrip dividends: Explained
BY TIO Staff
|July 30, 2024The world of trading is vast and complex, with a myriad of different strategies, terms, and concepts to understand. One such concept is the payment of scrip dividends by companies. This method of dividend payment, while not as common as cash dividends, is a significant part of the trading landscape and is utilized by a range of companies across different sectors.
The payment of scrip dividends involves a company issuing additional shares to its shareholders, instead of cash. This can have a number of implications for both the company and the shareholders, and understanding these implications is crucial for anyone involved in trading. This article aims to provide a comprehensive and detailed explanation of scrip dividends, the companies that pay them, and the impact they can have on trading strategies.
Understanding Scrip Dividends
Scrip dividends are a form of dividend payment where a company issues additional shares to its shareholders, instead of cash. This method of payment is often used by companies that want to retain their cash for other uses, such as reinvestment in the business or debt repayment. Scrip dividends can be beneficial for shareholders who wish to increase their stake in the company without having to purchase additional shares on the open market.
However, scrip dividends also have potential downsides. For one, they can dilute the value of existing shares, as the issuance of new shares increases the total number of shares outstanding. Additionally, unlike cash dividends, scrip dividends do not provide immediate cash flow to shareholders, which may not be ideal for those who rely on dividend income for their living expenses.
The Process of Issuing Scrip Dividends
The process of issuing scrip dividends begins when a company's board of directors declares a dividend. Instead of declaring a cash dividend, the board declares a scrip dividend, specifying the number of additional shares that will be issued for each existing share. The company then issues these new shares to its shareholders, increasing the total number of shares outstanding.
Shareholders have the option to accept the scrip dividends or, in some cases, to sell them. If a shareholder chooses to sell their scrip dividends, the company will often buy them back at a predetermined price. This provides shareholders with some flexibility in how they receive their dividends, allowing them to choose between additional shares or cash, depending on their individual needs and circumstances.
Impact on Share Price
The issuance of scrip dividends can have an impact on a company's share price. When new shares are issued, the total number of shares outstanding increases, which can dilute the value of existing shares. This can lead to a decrease in the share price. However, the impact on share price can be offset if the company uses the cash it retains through the issuance of scrip dividends to reinvest in the business and generate higher profits in the future.
Additionally, the announcement of a scrip dividend can send a signal to the market about a company's financial health. If a company chooses to issue scrip dividends because it needs to conserve cash, this could be seen as a sign that the company is facing financial difficulties, which could negatively impact the share price. On the other hand, if a company issues scrip dividends as part of a strategy to reinvest in the business and drive growth, this could be seen as a positive signal, potentially leading to an increase in the share price.
List of Companies Paying Scrip Dividends
There are numerous companies across different sectors that pay scrip dividends. These companies choose to issue additional shares to their shareholders for a variety of reasons, such as to conserve cash, reinvest in the business, or provide shareholders with the option to increase their stake in the company.
Some of the companies that have been known to pay scrip dividends include BP, Royal Dutch Shell, and HSBC. These companies are all based in the UK, where scrip dividends are more common than in other countries. However, there are also companies in other parts of the world that pay scrip dividends, including some in the US, Europe, and Asia.
BP
BP, a multinational oil and gas company based in the UK, has a history of paying scrip dividends. The company offers a scrip dividend programme that allows shareholders to choose to receive their dividends in the form of additional shares. This programme provides shareholders with the flexibility to increase their stake in the company without having to purchase additional shares on the open market.
However, BP's scrip dividend programme has been controversial at times. Some shareholders have criticized the company for diluting the value of existing shares through the issuance of new shares. Additionally, the company's decision to continue paying dividends, including scrip dividends, during periods of low oil prices and financial difficulties has been a point of contention.
Royal Dutch Shell
Royal Dutch Shell, another multinational oil and gas company based in the UK, also has a history of paying scrip dividends. Like BP, Shell offers a scrip dividend programme that allows shareholders to choose to receive their dividends in the form of additional shares. This programme is part of the company's strategy to conserve cash and reinvest in the business.
However, Shell's scrip dividend programme has also been controversial. The company has been criticized for diluting the value of existing shares and for continuing to pay dividends during periods of financial difficulties. Despite these criticisms, the company has maintained its scrip dividend programme, citing the benefits of cash conservation and reinvestment in the business.
HSBC
HSBC, a multinational banking and financial services company based in the UK, is another company that pays scrip dividends. The company offers a scrip dividend programme that provides shareholders with the option to receive their dividends in the form of additional shares. This programme is part of the company's strategy to conserve cash and maintain a strong capital position.
HSBC's scrip dividend programme has been well-received by shareholders, many of whom appreciate the flexibility it provides. However, the programme has also been criticized for diluting the value of existing shares. Despite these criticisms, the company has continued to offer the programme, citing the benefits of cash conservation and capital strength.
Impact on Trading Strategies
The payment of scrip dividends can have a significant impact on trading strategies. For traders who are focused on income, scrip dividends may not be as attractive as cash dividends, as they do not provide immediate cash flow. However, for traders who are focused on growth, scrip dividends can be an attractive option, as they provide the opportunity to increase their stake in a company without having to purchase additional shares on the open market.
Additionally, the announcement of a scrip dividend can be a significant event that traders watch closely. The announcement can send a signal to the market about a company's financial health and future prospects, which can impact the company's share price. Traders can use this information to inform their trading decisions, buying or selling shares based on their interpretation of the signal.
Income-focused Trading Strategies
For traders who are focused on income, scrip dividends may not be the ideal form of dividend payment. Unlike cash dividends, scrip dividends do not provide immediate cash flow, which can be a disadvantage for those who rely on dividend income for their living expenses. Additionally, the value of scrip dividends is not guaranteed, as it depends on the company's share price, which can fluctuate.
However, some income-focused traders may still find value in scrip dividends. For example, those who are looking to increase their stake in a company may choose to accept scrip dividends, as this allows them to acquire additional shares without having to purchase them on the open market. Additionally, some traders may choose to sell their scrip dividends, if the company offers this option, to generate immediate cash flow.
Growth-focused Trading Strategies
For traders who are focused on growth, scrip dividends can be an attractive option. Scrip dividends provide the opportunity to increase their stake in a company without having to purchase additional shares on the open market. This can be beneficial for those who believe in the company's long-term growth prospects and want to increase their exposure to the company's potential upside.
Additionally, the announcement of a scrip dividend can be a significant event that growth-focused traders watch closely. The announcement can send a signal to the market about the company's future growth prospects, which can impact the company's share price. Traders can use this information to inform their trading decisions, buying shares if they interpret the signal as positive, or selling shares if they interpret the signal as negative.
Conclusion
The payment of scrip dividends is a significant part of the trading landscape, and understanding this concept is crucial for anyone involved in trading. Scrip dividends can have a number of implications for both companies and traders, and these implications can impact trading strategies in various ways.
While scrip dividends may not be as common as cash dividends, they are utilized by a range of companies across different sectors, including BP, Royal Dutch Shell, and HSBC. These companies, and others like them, offer scrip dividend programmes that provide shareholders with the option to receive their dividends in the form of additional shares, providing flexibility and potential benefits for both the company and the shareholders.
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