Stock dividend - Financial definition
Concise definition of the term stock dividend
A stock dividend is a payment made by a corporation to its shareholders in the form of additional shares, rather than cash. This increases the number of shares each shareholder owns without altering the total value of their holdings.
Comprehensive definition of the term stock dividend
Stock dividends are often issued by companies looking to conserve cash while still rewarding shareholders. They are typically expressed as a percentage of the current shares owned, for instance, a 10% stock dividend means a shareholder with 100 shares would receive 10 additional shares. Stock dividends can signal company confidence and are often used by firms with strong growth prospects but limited cash flow.
This practice can lead to stock dilution, where the ownership percentage of existing shareholders is slightly reduced. Besides stock dividends, companies may also pay cash dividends, special dividends, or property dividends as alternative forms of distributing profits to shareholders.