Question

1. What is a stock dividend?

2. Which is better, a stock dividend or a cash dividend?

3. What is a stock split?

Answer 1

1.Stock dividends refer to paying additional units of shares instead of cash. Stock dividends are paid when a company does not have the cash to pay cash dividends but still wants to reward its shareholders. It increases the number of shares outstanding. It reduces the price of the share in the market thereby, making the stock more affordable and attractive to investors. But the market value of those shares remains the same.

2. Stock dividend refers to paying additional units of shares instead of cash. Stock dividends are not taxed until the shares are sold. Therefore, it increases the number of shares outstanding.

Cash dividend is the dividend paid to shareholders in the form of cash.

Shareholders can expect the stocks paid as part of stock dividends to grow and paid out more dividends, in form of cash or dividends. It also helps the shareholder avoid tax. Also, shareholders have to pay tax on cash dividends received. So, stock dividend is the better option.

3. A stock split increases the number of shares outstanding in the market. A stock can be split for 2 for 1, 3 for 1 or 5 for 1. The value of the shares and the market capitalization does not increase after a stock split.

It is done to reduce the price of the shares making it more affordable for the investors and for increasing the liquidity of a company’s shares.

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