Stock dividend means the distribution of additional shares among the investors. Many companies and financial organizations are there that offer shares to generate funds for the company. The investors invest in the company through these instruments. The investment decisions also depend on the reputation of the company. Getting some good returns in form of dividend is the motive behind these investments.
The shares bought by the investors provide them the status of an owner of the company and the ownership pattern depends on the amount of shareholding. When the company makes profit, a certain percentage of the profit is distributed among the shareholders according to their amounts of shares in the company. These dividends are provided in cash or in the form of additional shares. These additional shares are known as stock dividend.
There are several reasons of providing
stock dividend to the share holders. The company may have some shortage of liquid cash. Because of this it becomes impossible for the company to provide cash to every shareholder. On the other hand, it is also possible that the company wants to invest more money from the earned profit into the company to raise the production level or for some other reasons.
There are several benefits of the
stock dividend. No tax is charged on such dividends. If a shareholder receives some kind of stock dividend he or she is not entitled to pay any kind of tax on that until the additional shares are sold. On the other hand, this type of dividend provides the shareholder with additional ownership in the company which can provide more profit in the future.
Another form of dividend that is provided to the shareholders is known as cash dividend. This dividend is paid in hard cash form or by check. The rules of this type of dividend is more or less same as the stock dividend. Here also the shareholder receives a certain part of the company's profit, which is decided according to the number of shares the shareholder holds.
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