The company pays the stock divvy to the last buyer in the chain of borrowing/shorting transactions. Anyone short as of the ex-dividend date owes the divvy to the original owner whose shares were borrowed. A shorter can cover this by buying or shorting the other stock otherwise his broker will charge his account for the amount.
Crappy pennies like to issue stock divvies in private entities. These securities have no market value. So, a shorter's cost in this case is zero.
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