What is Stock Dividend?
A stock dividend is a distribution of additional shares of stock to shareholders of a company. It is a way for a company to return value to its shareholders without actually issuing cash payments.
When a company declares a stock dividend, it will issue a certain number of additional shares of stock to each shareholder on a pro rata basis, based on the number of shares that the shareholder already owns. For example, if a company declares a 10% stock dividend, a shareholder who owns 100 shares of the company's stock would receive an additional 10 shares as a dividend.
Stock dividends are typically paid in proportion to the number of shares that a shareholder owns, so that larger shareholders receive more additional shares than smaller shareholders. They can be issued in lieu of, or in addition to, cash dividends, which are payments of cash to shareholders.
Stock dividends can be a useful way for a company to return value to shareholders, especially if it does not have the cash on hand to make a cash dividend payment. However, stock dividends can also be dilutive, meaning that they can decrease the value of each individual share by increasing the overall number of shares outstanding. As a result, stock dividends are not always well received by shareholders, and the decision to issue a stock dividend is typically made carefully by a company's board of directors.