Definitions of both scrip dividend and share split gives the same meaning. What is the difference between a scrip dividend and share splits?
Firstly a stock split is easy, for example each unit of stock is converted into 10 units. So if you owned 1% of the company before the stock split, you will still own 1% after the stock split, but have 10 times the number of shares. The company does not pay out any money when doing this and there is no effect on tax for the company or the share holder.
Now onto stock dividend…
When a company make a profit, the company gives some of the profit to the share holders as a dividend; this is normally paid in cash. An investor may then wish to buy more shares in the company using the money from the dividend. However buying shares used to have a large cost in broker charges etc.
Therefore some companies allowed share holders to choose to have the dividend paid as shares. The company buys enough of their own shares to cover the payout, only having one set of broker charges and then sends the correct number of shares to each share holder that has opted for a stock dividend. (Along with any cash that was not enough to buy a complete share.)
This made since when you had paper shares and admin costs where high for stock brokers. It does not make sense these days.
A stock dividend is taxed as if you had been paid the dividend in cash and then brought the stock yourself.
Investopedia has a good definition.
Stock dividends are similar to cash dividends; however, instead of cash, a company pays out stock.
Stock splits occur when a company perceives that its stock price may be too high. Stock splits are usually done to increase the liquidity of the stock (more shares outstanding) and to make it more affordable for investors to buy regular lots (a regular lot = 100 shares).
stock splits are always mandatory, and are typically issued in whole number share multiples (e.g. 100 shares becomes 200 shares). scrip dividends are usually optional and typically result in fractional share payouts. if a scrip dividend is optional, then shareholders are given the choice to receive dividends in either cash or stock. shareholders who receive cash wind up owning less of the company, while shareholders who receive scrip dividends end up with a larger ownership stake in the company. if you have a mandatory scrip dividend and you ignore the problem of fractional shares, then it is essentially the same as a tiny complicated stock split.
Most corporations have a limit on the number of shares that they can issue, which is written into their corporate charter. They usually sell a number that is fewer than the maximum authorized number so that they have a reserve for secondary offerings, employee incentives, etc.
In a scrip dividend, the company is distributing authorized shares that were not previously issued. This reduces the number of shares that it has to sell in the future to raise capital, so it reduces the assets of the company.
In a split, every share (including the authorized shares that haven't been distributed) are divided. This results in more total shares (which then trade at a price that's roughly proportional to the split), but it does not reduce the assets of the company.