Glossary
Stock dividend
A dividend paid in additional shares instead of cash, raising each holder’s share count while the value of the stake stays the same.
A stock dividend is a distribution of extra shares to existing shareholders, in place of or alongside a cash dividend. A 5% stock dividend gives you 5 new shares for every 100 you own. The company keeps its cash, and every shareholder's percentage ownership stays the same, so it rewards holders with more shares rather than with money.
How it works
The board declares a percentage and a record date. On the distribution date, the new shares arrive in brokerage accounts automatically. Because the company is the same size and its pie is now cut into more slices, the share price adjusts down by roughly the same proportion. Fractional shares are usually paid out in cash.
Taxes and how it differs from a split
In the US, an ordinary pro rata stock dividend is generally not taxable when you receive it; you simply reallocate your cost basis across more shares, and the new shares share the original holding period. It becomes taxable if shareholders could choose cash instead, or if the distribution changes ownership proportions.
A stock dividend and a stock split have the same effect on your holding. The difference is size and accounting: small distributions, typically under about 20% to 25%, are recorded as stock dividends that move an amount out of retained earnings, while larger ones are generally treated as splits. Neither creates value by itself.