What Is a Stock Dividend?

Stock dividends are also called "share dividends". Dividends paid by shareholders to shareholders in the form of shares. When taking stock dividends, the company usually transfers the amount of dividends due to shareholders to capital, issues new shares of the same amount, and distributes them according to the shareholders' shareholding ratio. Generally, shareholders of ordinary shares are assigned to ordinary shares, and shareholders of preferred shares are assigned to preferred shares. In this way, the structure and proportion of shareholders' shares in the company can not be changed, but the number of shares can be increased. The calculation of distribution stock dividends is usually expressed as a percentage, such as 10%, 20%, etc., which represents the ratio of new shares that can be allocated to each share. If the calculation result is less than one share, the zero shares can be converted into cash and distributed to shareholders, or the zero shares can be sold collectively, and the amount of the proceeds is distributed among the zero shareholders. Conditions to be adopted in the form of stock dividend distribution: The company must have a profit to be distributed, a decision must be made at a shareholders meeting, and it must meet the relevant regulations for the issuance of new shares. Because the stock transaction price is usually above par, for shareholders, the distribution of stock dividends may result in more investment income than cash dividends; but excessive distribution of stock dividends will increase the total number of shares and affect the company's future per share Dividend levels and stock market prices are not conducive to improving the company's market image and increasing working capital. ^[1]

Stock dividend

Stock dividends are also called "share dividends". Dividends paid by shareholders to shareholders in the form of shares. When taking stock dividends, the company usually transfers the amount of dividends due to shareholders to capital, issues new shares of the same amount, and distributes them according to the shareholders' shareholding ratio. Generally, shareholders of ordinary shares are assigned to ordinary shares, and shareholders of preferred shares are assigned to preferred shares. In this way, the structure and proportion of shareholders' shares in the company can not be changed, but the number of shares can be increased. The calculation of distribution stock dividends is usually expressed as a percentage, such as 10%, 20%, etc., which represents the ratio of new shares that can be allocated to each share. If the calculation result is less than one share, the zero shares can be converted into cash and distributed to shareholders, or the zero shares can be sold collectively. Conditions to be adopted in the form of stock dividend distribution: The company must have a profit to be distributed, a decision must be made at a shareholders meeting, and it must meet the relevant regulations for the issuance of new shares. Because the stock transaction price is usually above par, for shareholders, the distribution of stock dividends may result in more investment income than cash dividends; but excessive distribution of stock dividends will increase the total number of shares and affect the company's future per share Dividend levels and stock market prices are not conducive to improving the company's market image and increasing working capital. ^[1]

1. Both stock dividends and stock splits will increase the number of stocks, but stock repurchases will reduce the number of stocks

2. Stock dividends and

Save the company

For the company, stock dividends have no cash outflow and will not cause the company's assets to decrease. Instead, it will only convert the company's retained earnings into equity. However, stock dividends will increase the number of shares outstanding (number of shares) and reduce the value of each share. It will not change the total shareholder equity of the company, but it will change the structure of shareholder equity. On the surface, apart from increasing the number of shares held, the distribution of stock dividends does not seem to bring direct benefits to shareholders. In fact, this is not the case. Because the market and investors generally believe that if the company issues stock dividends, it usually indicates that the company will have greater development and growth. Such information transmission will not only stabilize the stock price, but may even increase the stock price. In addition, if shareholders sell stock dividends and turn them into cash income, they will also bring capital gains in tax benefits. Because compared to the taxation of dividend income, investors have more flexibility in the choice of tax time for capital gain income. In this way, even if there is no difference in tax rate between dividend income and capital gain income, only in terms of tax time, because investors can Freedom to push back the timing of capital gains income tax, so there will also be a difference in income between them due to delayed taxation. So stock dividends are not as meaningless to shareholders as they seem!