What type of dividend is a promise to pay a dividend in the future?

A scrip dividend is a type of dividend that represents a company's promise to pay a dividend in the future, typically when it does not have sufficient cash on hand to meet its cash dividend obligations. Instead of distributing cash or property immediately, the company issues a scrip, which is essentially a promissory note that indicates the amount of the dividend it intends to pay at a later date. This allows the company to preserve cash for operational needs while still rewarding shareholders with a dividend declaration.

Scrip dividends serve as a means for companies experiencing cash flow issues to maintain a commitment to their shareholders. They might specify when the payment will be made, reiterating the company's intent to fulfill its obligations despite current financial constraints. This concept is key in understanding dividend classifications within corporate finance.