What Is a Scrip Dividend? Taking a Dividend in Shares Instead of Cash in Nigeria
A scrip dividend lets a shareholder take new shares instead of a cash dividend. Here is how the election works through the registrar, what changes at CSCS and what to check before you decide.
A scrip dividend is a dividend that a Nigerian company offers to pay in new shares of the company instead of cash. The company declares an ordinary cash dividend in the usual way, then gives each qualifying shareholder the option to take the value of that dividend as additional shares. Shareholders who make no election receive cash; those who return an election form to the registrar receive shares, which are credited to their holding at CSCS or with the registrar once the scheme closes.
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Important disclaimer. This article is for educational purposes only. It is not financial advice and is not a recommendation to buy any specific share or investment product. Always do your own research and consider seeking independent financial advice before making any investment decision.
How a Scrip Dividend Scheme Works
A scrip dividend starts life as a normal dividend. The board recommends a cash dividend per share, and shareholders approve it at the annual general meeting. Alongside it the company asks shareholders to approve a scrip dividend scheme, which allows the company to issue new shares to any shareholder who prefers them to cash. The scheme needs shareholder approval because it involves issuing new shares, and it is documented in an explanatory memorandum that the company publishes and sends to shareholders together with the AGM notice.
The memorandum sets out who qualifies, how the number of new shares is worked out, how to elect and the dates that apply. Qualifying shareholders are those on the register of members at the qualification date, which is the same date used for the cash dividend. A shareholder who wants shares completes an election form and returns it to the registrar by the closing date stated in the memorandum. Many registrars now accept the election through their online portals as well as on paper.
How the Number of New Shares Is Worked Out
The company sets a scrip price for the new shares using a method described in the memorandum, typically based on the market price of the share over a stated period around the qualification date. Your cash dividend entitlement, after any deductions that apply, is divided by that scrip price to give the number of new shares. Because the result is rarely a whole number, the memorandum also says what happens to the fraction: it may be paid in cash, rounded down, or carried forward, depending on the scheme.
- The scrip price is set by the company under the published method. It is not negotiated and it is not chosen by the shareholder.
- The number of shares you receive depends on your dividend entitlement and the scrip price, so two shareholders with the same holding receive the same number of new shares.
- Withholding tax may apply to a scrip dividend as it does to a cash dividend; check with the registrar how it is handled under the scheme.
- Where a scheme offers a partial election, you can take some of the dividend in cash and some in shares. Not every scheme allows this.
What Changes in Your CSCS Account
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Once the election period closes, the company allots the new shares and the registrar updates the register of members. For shareholders whose holding is dematerialised, the new shares are then credited to the CSCS account linked to their Clearing House Number (CHN), and they appear on the next CSCS statement as an increase in the number of units held in that company. Shareholders whose holding is still in certificate form receive the new shares through the registrar, either as a further certificate or, increasingly, as an electronic entry, depending on the registrar's procedures.
No contract note is issued, because no trade took place on the Nigerian Exchange (NGX). The record of the transaction is the allotment advice from the registrar and the change on your CSCS statement. Keep both. The scrip price and the number of shares allotted are the figures you will need if you ever have to account for what the shares cost you.
A scrip dividend adds units to your holding without a purchase order, a broker or a settlement cycle. It can take some weeks after the election closes for the new shares to appear at CSCS, so allow time before raising a query.
Scrip Dividend vs Bonus Share vs Dividend Reinvestment
These three all end with more shares in your account, but they are not the same thing. A bonus share is issued to every shareholder free of charge out of the company's reserves; there is no cash alternative and nothing to elect. A scrip dividend is an alternative to a cash dividend that each shareholder chooses; those who do not elect get cash. Dividend reinvestment is a service offered by a broker or platform, where your cash dividend is received and then used to buy existing shares on the NGX. Reinvestment produces a contract note and a settlement; a scrip dividend does not.
What to Check Before You Elect
- Read the explanatory memorandum. It sets the scrip price method, the closing date and how fractions are treated, and it is the only document that binds the company.
- Confirm that your registrar records, including your name, address and bank mandate, are current. An election from a shareholder whose details do not match the register may be rejected.
- Note the closing date for elections. An election received after it is treated as no election, and you receive cash.
- Ask the registrar how withholding tax is applied under the scheme, and speak to a tax professional about how the shares are treated in your own circumstances.
- Understand the effect on your records. Your holding changes without a trade, so update whatever you use to track your shares.
Shares Saver registers shares in your own name at CSCS, so any scrip dividend a company offers is credited to your own account rather than to a nominee. See how a holding is set up and maintained.
See How It WorksScrip Dividends in Nigeria: FAQs
Do I have to take shares if the company offers a scrip dividend?
No. The scheme is optional. Unless you return an election form by the closing date, you receive the cash dividend in the usual way through your bank mandate.
Where do the new shares come from?
They are newly issued by the company, which is why the scheme needs shareholder approval and why the total number of shares in issue rises after a scrip dividend. Shareholders who take cash end up with a slightly smaller percentage of the company than before.
Will the new shares show on my CSCS statement?
Yes, if your holding is dematerialised and linked to your CHN. The registrar passes the allotment to CSCS, and the extra units appear under the company's name on your next statement. If they do not appear within the period stated in the memorandum, contact the registrar with your registrar account number and CHN.
Is tax deducted from a scrip dividend?
Withholding tax may apply. The memorandum and the registrar can tell you how the scheme handles it, and a tax professional can tell you how it applies to you.
Can I sell the scrip shares straight away?
Once the shares are credited to your CSCS account and the company has completed any listing formalities for the new shares on the NGX, they are ordinary shares and can be sold through a SEC-registered stockbroker in the same way as the rest of your holding.
Important disclaimer. This article is for general information and educational purposes only. It does not constitute financial advice, investment advice, or any recommendation to buy, sell, or hold any security. The value of investments can fall as well as rise. You should seek independent regulated financial advice before making any investment decision. Shares Saver does not provide financial advice.
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