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From InvestorWords.com: A dividend paid as additional shares of stock rather than as cash. If dividends paid are in the form of cash, those dividends are taxable. When a company issues a stock dividend, rather than cash, there usually are not tax consequences until the shares are sold. These additional shares of stock are usually distributed to shareholders at no cost. Please see the following site for additional information: http://en.wikipedia.org/wiki/Dividend

2006-08-02 12:47:46
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Q: Why would a company issue a stock dividend instead of a cash dividend?
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Related Questions

What are the different types of dividends corporations may issue?

1 - cash dividend 2 - Stock dividend 3 - Dividend in kind


How would the price of a stock be affected by its dividend?

Paying a dividend costs the company and as such will decrease the value of the company and the stock. If all other factors are equal, a buyer would prefer a stock that is expected to pay the higher dividend. If Company A is expected to pay $10 per share annually and Company B $8, an investor who wants to make 8% would be willing to bid $125 for a share of Company A but only $100 for Company B. On the date that a dividend is effective, a company's stock will drop by the amount of the dividend because that amount will be paid to the person who owned the stock at the beginning of that day.


What is the effect of a stock dividend on a corporation's stockholders'equity accounts?

The stock Dividend is more or less profit sharing. When a dividend paying company is profitable they pass along those profits to the shareholders in the form of a dividend check.


Define shareholders wealth?

A shareholder's wealth can be dependent on the stock price if they decide to sell it. It can also be earned in the form of dividends. Dividends are paid when a company makes a profit and decides to issue a dividend to shareholders instead of reinvesting the profit.


What is the importance of dividend history in finances?

Dividend history is important especially for stock investing. Without knowing the dividend history for a company, you will never know if the company will be reliable to pay the dividend every quarter.


The effect of a stock dividend is to transfer what?

transfer additional shares of stock in the company to existing shareholders


What is stock divided yield?

Stock dividend yield is a ratio useful in stock analysis. It is calculated by this formula: dividend per stock/stock price*100% In some cases the divisor in the formula may differ. Instead of the current stock price, it may be the price an investor purchased the stock at, or it may be the price when the dividend was paid.


Can an LLC issue stock?

Corporations issue stock and are owned via stock. An LLC does not issue stock. Like partnerships, an Limited Liability Company is simply owned by the members and/or the managers of the company.


Is it legal for a company not to issue any new capital stock to the public?

There is no requirement for a company to issue capital stock.


What are preferred shareholders?

Preferred shareholders are the people who own a company's preferred stock. Corporations can issue several types of stock. If there are profits, the corporation the corporation may pay dividends. The company would pay the same amount to each share of stock. However, the company may have issued two types of stock, preferred and common. Preferred stock gets a percentage of the face value as a dividend say 5%. Common stock gets a percentage of the profits that are left. So if a person has a $100 share of preferred, and the company declares a dividend, the preferred shareholders are paid first. He gets his $ 5.00 first. He is a preferred shareholder. The rest of the dividend is divided among the common shareholders. So Preferred Shareholders get paid first. Their dividend will never go up. It will go down if the company does not pay its dividend.


What are company dividends?

Company dividends are royalties payed to stock holders of a particular business. The amount of the dividend varies, depending on the company and the amount of stock owned.


How do you calculate ex-stock dividend price?

Ex-stock dividend is equal to the price of the dividend of the stock, the only difference is the face that the dividend is actually paid to the seller rather then the buyer of the stock.


Difference between cum dividend share and ex dividend share?

Cum-dividend (CD) comes before Ex-dividend (XD). A stock is said to be CD indicates that the company is paying out dividend in the near future which serves like a preempt notice to investors. The company would have announced the amount of dividend to be paid out but has yet to. If the shareholder sells a CD stock, he/she is not entitled to the dividend. There has to be a cut off date that the company has to set, so as to confirm the list of shareholders to receive dividend. When the list is finalized, the stock is said to go XD. Once XD status is declared, the shareholder who sells his/her shares will still be entitled the dividends, while the new owner will not.


How do you compute value of preferred stock?

You can check with a stock broker and ask for a quote on the price of a preferred stock. A preferred stock pays a fixed dividend. The dividend does not go up. It does not go down. Some times when business is bad and the company does not make a profit, the company fails to pay the dividend. If the stock is non cumulative, the dividend is simply skipped. If it is cumulative, then it is paid if the company makes money. When there is money, the preferred dividend is paid first. The stock may or may not be convertible. If it is convertible, it can be exchanged for common stock if the value of the common becomes higher than that of the preferred. The preferred percentage is based on the value printed on the face of the stock. It may be $100 or $1000. Thus if it is 5% of 1,000 the dividend is $50. All that is simply to say a number of factors go into calculating the value of preferred. How stable is the company. Will it pay the dividend. How does the dividend compare to the same amount of money invested in government securities? Is the preferred convertible? Of corse preferred are usually voting shares just like common shares. If there is a proxy fight then that can also affect the value.


How do you get the stock dividends in a journal entry?

debit stock dividendcredit dividend income


Does stock that pays special dividend always go down by the amount of the dividend?

The ex-dividend date is the day after which all shares bought and sold no longer come attached with the right to be paid the most recently declared dividend. This is an important date for any company that has many stockholders, including those that trade on exchanges, as it makes reconciliation of who is to be paid the dividend easier. Prior to this date, the stock is said to be cum dividend ('with dividend'): existing holders of the stock and anyone who buys it will receive the dividend, whereas any holders selling the stock lose their right to the dividend. On and after this date the stock becomes ex dividend: existing holders of the stock will receive the dividend even if they now sell the stock, whereas anyone who now buys the stock now will not receive the dividend. It is relatively common for a stock's price to decrease on the ex-dividend date by an amount roughly equal to the dividend paid. This reflects the decrease in the company's assets resulting from the declaration of the dividend. However it must be emphasised that there is no direct link between the price and the dividend, this price movement is simply a result of market action. To sum up the date a dividend is paid is not the date a stock usually goes down but rather the date that the stock purchase no longer includes the dividend. This in no way is a guarentee a stock could be up considerably that day based on market conditions and a number of other things even with the downward pressure of no longer being able to receive that dividend.


What is a dividend in the stock market?

The dividend is the amount of money that u already have made when you buy the stock


How do you buy stock in the company?

Stock (equity) can be bought during the original first public issue by a company and by the secondary market (stock market)


What effect does a stock dividend have on a companys total assets?

A Dividend would result in the company's asset decreasing. Let us say a company has $2,000,000,000 total assets and 1,000,000 shares in the stock market.If the company offers a $5 dividend per share then it means that they need to pay out $5,000,000 as dividends which means their net assets would be $1,995,000,000/- after the dividend payout.


Relationship between shareholder return and market share price?

Sometimes there is a relationship between shareholder return and the price of a stock. However, it is not real close. People buy a stock on the basis of what they think it will return in the future rather than what it has returned in the past. If a stock keeps slowly increasing its dividend, people generally assume that the company will continue in that direction. Most people would pay a little more for that stock than they would for a preferred stock in the same company that would never increase its dividend. However, if a company decreases its dividend, people take that as a negative sign. A number of people will dump the stock. It can still be a good company but a lot of people will get out. They see a company that is getting into trouble. The stock could fall below what it would be if just the ratio of the last dividend to the price were considered. Some people will buy the stock because they see a stock with a 10% dividend. A number of companies do not pay dividends. Some are startups with special products that a big company might purchase. There is no telling if their product will ever be worth anything. That is strictly a gamble.


What is the journal entry for stock dividend received?

Stock dividends - These are dividends paid in the form of additional stock of the issuing company to shareholders of record in proportion to their current holdings. A stock dividend does not increase the wealth of the recipient nor does it reduce the net assets of the firm. It is a permanent capitalization of retained earnings to contributed capital. As there is no change in the amount of the stock that;s why stock dividend does not require any entry to be recorded rather it is shown as note.


Can an LLC be on the stock exchange?

An LLC (limited liability company) is not on the stock exchange, as it it doesn't issue stock.


Does the issuance of a stock dividend increase the company's assets?

No. Dividend payout essentially means that the company pays money to all its shareholders and hence its assets will effectively decrease.


A company expects to grow its dividend by 2 percent each year forever The expected dividend in year 1 is 1.00 Investors require a 6 percent rate of return on this stock What is the new stock price?

Stock price = div/K-gStock price = 1/6%-2%Stock price = 25Div = DividendK = rate of returng = growth rate


What is ex dividend rate?

The ex-dividend date (typically 2 trading days before the record date for U.S. securities) is the day on which all shares bought and sold no longer come attached with the right to be paid the most recently declared dividend. This is an important date for any company that has many stockholders, including those that trade on exchanges, as it makes reconciliation of who is to be paid the dividend easier. Existing holders of the stock will receive the dividend even if they now sell the stock, whereas anyone who now buys the stock will not receive the dividend. It is relatively common for a stock's price to decrease on the ex-dividend date by an amount roughly equal to the dividend paid. This reflects the decrease in the company's assets resulting from the declaration of the dividend. The company does not take any explicit action to adjust its stock price; in an efficient market, buyers and sellers will automatically price this in.