A stock dividend is a payment made by a corporation to its shareholders, usually in the form of additional shares. Rather than cash, shareholders receive more stocks in the company that’s distributed on a pro-rata basis. For instance, if you own 100 stocks and a company announces a 10% stock dividend, you will receive an additional 10 stocks. Companies typically issue stock dividends if they’re short on liquid cash or if they aim to lower the price of each stock on the market. Therefore, stock dividends increase the total number of stocks in the market, but do not directly increase the inherent value of the company.
1. How do stock dividends affect stock price?
Stock dividends often result in a decrease in the price per share because more shares are distributed amongst investors. However, the total value of all shares held by an investor typically remains the same.
2. Are stock dividends taxable?
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In many jurisdictions, stock dividends are not taxable until the shares are sold. This is because they often do not represent an immediate gain in value.
3. How are stock dividends distributed?
When a company declares a stock dividend, it’s proportionally distributed to shareholders. For instance, if you own 10% of the stocks, you will receive 10% of the declared stock dividend.
4. Why would a company issue stock dividends instead of cash?
Companies might release stock dividends instead of cash when they’re short on liquid assets. Besides, issuing stock dividends can lower the stock’s price on the market, making it more attractive to new investors.
5. Can you sell a stock after receiving a dividend?
Yes, you can sell a stock after receiving a dividend. However, the timing of the sale may impact whether the dividend is taxable and at what rate.