Why Pay Stock Dividends?
A company pays stock dividends as an alternative to cash distributions. Stock dividends are paid as a reward to investors from a company’s total shares, while cash dividends are paid from current earnings or preserved profits. Cash distributions are the most common form of dividends, although stock distributions may be made to common stock shareholders. Types There are several different ways that a company can pay dividends. If profits exceed expectations in a quarter, for instance, cash payments can be made to shareholders. In the instance a company is cash constrained but still wants to maintain dividend distributions and keep investors happy, payments may be made in the form of additional stock. Identification When a company pays a stock dividend, it issues additional shares to its common shareholders. These distributions are made as a fraction paid for each existing share that a stockholder owns. A five percent dividend, for instance, grants investors an additional five shares for
