Scrip issues

This looks like a burst of spontaneous generosity by companies that give investors some extra shares for nothing. Sometimes they are in place of cash dividends and sometimes as a supplement to them. In fact it is a simple bookkeeping exercise that should have no effect on the share price or the value of the company – some of the retained earnings are capitalized and shifted from one line in the books to another. That is also the reason they are called ‘capitalization issues’. Sometimes issuing scrip is called a ‘bonus issue’ and surprisingly enough, contrary to logic, the share price sometimes rises at the time. Shareholders may then find it hard to calculate the cost of the holding for capital gains tax when they sell.

Source: Becket Michael (2014), How the Stock Market Works: A Beginner’s Guide to Investment, Kogan Page; Fifth edition.

1 thoughts on “Scrip issues

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