When a company declares a stock dividend, the stockholders receive additional shares instead of cash. The stock dividend may be additional shares in the company or in a subsidiary being spun off.
Stock dividends are usually expressed as a percentage of the shares held by a stockholder. For example, a company may declare that each stockholder will receive 3 shares for every 100 shares owned as the result of a 3% stock dividend. A cash payment may sometimes be made in lieu of any fractional shares.
The procedures for stock dividends may be different from cash dividends. The ex-dividend date is set on the first business day after the stock dividend is paid (and is also after the record date).
A company may also pay a cash dividend instead of or in addition to a stock dividend. Sometimes, a stockholder may also be given an option to convert his stock dividend into a cash dividend.
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