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A What is a stock dividend

A What is a stock dividend

What is a stock dividend

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Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years. He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. Gordon is a Chartered Market Technician (CMT). He is also a member of CMT Association.A stock dividend is a dividend payment to shareholders that is made in shares rather than as cash. The stock dividend has the advantage of rewarding shareholders without reducing the company's cash balance, although it can dilute earnings per share.

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other investments.Therefore, in this example, an investor who owned 100 shares in a company will own 105 shares once the dividend is executed. But the total market value of those shares remains the same. In this way, a stock dividend is similar to a stock split. This is not to say that the market value of the shares will stay the same. The incentive behind the stock dividend is the expectation that the share price will rise.

When a stock dividend is issued, the total value of equity remains the same from both the investor's perspective and the company's perspective. However, all stock dividends require a journal entry for the company issuing the dividend. This entry transfers the value of the issued stock from the retained earnings account to the paid-in capital account. The amount transferred between the two accounts depends on whether the dividend is a small stock dividend or a large stock dividend. A stock dividend is considered small if the shares issued are less than 25% of the total value of shares outstanding before the dividend. A journal entry for a small stock dividend transfers the market value of the issued shares from retained earnings to paid-in capital. (Source: www.investopedia.com)

 

 

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