A Stock Dividend is the process of paying shareholders
in the form of securities rather than in cash. This can be additional shares
in the company, or it may be shares in a subsidiary being spun off to shareholders.
The number of shares received are normally a percentage of the shares that
were already owned.
It does not involve a distribution of assets as a regular
cash dividend does: total stockholders equity is not affected by a stock dividend,
since the equity is only transferred from the
Retained Earnings to the
contributed capital section of the Balance Sheet.
Form the point of view of the firm, these dividends conserve
cash that can be used to run or expand the business. For the investors, stock
dividends usually offer tax advantages above a cash dividend.