A dividend that is issued by a company in the form of a promissory note (note payable), whereby the company promises to make payment at a future date. This promissory note becomes due at some time in the future, sometimes bearing interest until payment is actually made. Alternatively, management, sometimes, propose the payment of scrip dividends in the form of shares. Stockholders must approve this proposal as it affects their holdings (this creates new shares). In this case, stockholders can choose between a scrip dividend and a cash dividend. Companies use the scrip dividend method of payment when net profits justify a distribution, but the cash position of the company is temporarily vulnerable. In this sense, a scrip dividend is an alternative to a cash dividend and a temporary medium for stock dividends.

In principle, scrip dividends are quite similar to bond dividends as both involve the issue of a debt instrument for the purpose of postponing cash payment of corporate profit distributions.

The scrip dividend is also called a liability dividend.