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Investment Analysis Clubs / Grape's Fisher Kings


Subject:  Re: Stock Dividends and Stock Splits Date:  7/11/2007  10:42 PM
Author:  PhilWeiss Number:  2789 of 2794

It's been awhile since I looked at this but there is a difference. A stock split simply increases the number of shares by a pre-determined ratio. There should not be an impact on par value or paid-in-capital. Here the company simply increases the number of shares outstanding.

If there is a stock dividend, each shareholder receives additional shares as the firm issues new shares in lieu of paying a cash dividend. If 10%, shareholders would get 10 shares for each 100 shares of stock owned.

A company may choose to pay a stock dividend, which is a dividend paid in shares or fractions of shares, instead of cash. A stock dividend merely lowers the cost per share of your holdings; it does not change the total value of your holdings. For example, if you owned 100 shares of stock worth $1,000, each share would be worth $10. If a 25% stock dividend were paid, you would then own 125 shares whose total value would still be $1,000. However, each share would then be worth $8.

A stock dividend is usually nontaxable at the time paid unless the company offers the stockholder the option of receiving the dividend in the form of either stock or cash.


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