What is scrip?
Scrip is a substitute for legal tender that can be used as credit. It is issued by stores, banks, and companies to represent credit, investments, or rewards. Examples include gift cards, loyalty points, and shares.
Scrip can also represent temporary documents for shares during stock splits. It can also be used as currency within a private organization, like airlines or casinos. Frequent flyer miles and casino chips are examples of this. Studying scrips helps understand money and its impact on the economy.
Scrip: Pros and Cons
Scrips can help a company conserve cash while fostering customer loyalty. For example, store credit encourages customer return while retaining original sale cash.
Companies can also save cash through scrip dividends while rewarding shareholders with more shares. This allows the company to reinvest the saved cash and the shareholders to gain more shares free of charge, possibly with tax benefits.
On the downside, scrip dividends may indicate company cash-flow issues. Shareholders might need to sell extra shares to pay tax on additional dividends, and share price increase post-scrip dividend declaration might lead to excessive dividends.