Stock Dividends

The dividend paid in form of additional shares rather than cash is known as stock dividends. The company might have decided to give shares rather than giving stock. The shares are usually given in form of percentage of existing shares. When the company is short of liquidity they give this type of dividend. The issuing of stock dividend indirectly shows that there is addition of asset in the company. It is a part of bookkeeping process. Here dividend is provided as an incentive for holding the company shares. The companies which have grown out of proposition and find no logic in investing back the profit prefer giving such dividend. The shareholder has a huge advantage in receiving dividend in the form of stocks; they need not pay tax for such dividend.

The stock split and stock dividends are not same. Some of the differences are shown below

• In case of stock split the asset value remains same, whereas in stock dividend the asset value would have increased at the time of issuing of stock as dividend.
• In case of stock split the market value of the share goes down, whereas it will remain stable or goes up in case of stock dividend.
• The market capital in stock split remains the same, whereas it increases in case of stock dividends.
• Stock dividend usually happens after huge expansion, it is not the same in case of stock split.  
• Both have journal entry in accounting. There are two types of stock dividend they are small stock dividend, large stock dividend. The classification is based on the percentage of additional stock issued in comparison with the already existing stock. If the percentage is more than 25 then it is called as large stock dividend, whereas if the percentage is less than 25 then it is called as small stock dividend.

The organization usually do internal stock dividend. Internal stock dividend is nothing but distributing additional stock to the employees who are holding the shares of the company. The main advantage of share holders when stock dividend takes place is that they have additional stocks of the company without paying extra money for it. The value of the stock in the market does not reduce as well which gives additional profit to the investor who is holding the stock of that particular company.