Unveiling Stock Dividends: Rewards for Shareholders
August 26, 2023 by JoyAnswer.org, Category : Finance
What is a stock dividend?Delve into the concept of stock dividends, which are additional shares of a company distributed to shareholders as a form of reward. Understand how they differ from cash dividends.
What is a stock dividend?
A stock dividend, also known as a stock bonus or a capitalization issue, is a distribution of additional shares of a company's stock to its existing shareholders. This is typically done by a corporation as a way to share its earnings and profits with shareholders without distributing cash. Stock dividends are often expressed as a percentage of existing shares held by each shareholder.
For example, if a company issues a 10% stock dividend and you own 100 shares of that company's stock, you would receive an additional 10 shares as a dividend.
Stock dividends increase the number of shares a shareholder holds, but they do not change the overall value of the investment. Essentially, stock dividends are like cutting a pie into more slices without changing the size of the pie. Shareholders receive more shares, but each share is worth proportionally less after the dividend.
Stock dividends are typically seen as a signal of a company's financial health and confidence in future growth because it indicates that the company is reinvesting its profits back into the business. However, they may also dilute the ownership stake of existing shareholders.
It's important to note that stock dividends are different from cash dividends, where shareholders receive a cash payment based on the number of shares they hold.
