A stock dividend is a distribution of additional shares of a company's stock to its existing shareholders. It is a form of dividend payment in which a company chooses to distribute shares of stock to its shareholders instead of cash. When a stock dividend is declared, the company issues new shares to its shareholders in proportion to their existing holdings. Essentially, stock dividends increase the number of shares owned by shareholders without changing their proportional ownership in the company. The purpose of a stock dividend is to reward shareholders while maintaining the company's capital structure. It is often used as an alternative to cash dividends when a company wants to conserve its cash reserves or demonstrate confidence in its future growth prospects.
A stock dividend does not result in an increase in the total value of the shareholders' investment, as the price per share typically decreases proportionally to the increase in shares. However, it does provide shareholders with the opportunity to acquire more shares at a lower price. Stock dividends are typically expressed as a percentage, indicating the amount of additional shares shareholders will receive for each share they already own. For example, a 10% stock dividend means that for every 10 shares owned, shareholders will receive an additional 1 share.