Stock Dividend

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Description of Stock Dividend. Explanation.


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Definition Stock Dividend. Description.

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.

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Compare with: Retained Earnings  |  Spin-Off  |  Employee Stock Ownership Plan

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