Definition of Stock Dividends with example

Definition of Stock Dividends

Stock dividends are dividends where bonus shares/stocks are given away within the current shareholders of the firm without taking any charge from the shareholders. The firm that is continuously performing well but yet want to improve its current financial base by not giving the shareholders cash from operating income rather it focus on investing that income further.

Importance of stock dividends

Paying out dividends is a great indicator of capability of any firm to generate profit. But in some cases board of directors may not want to pay out cash within the shareholders as they plan to use that income for reinvestment. But shareholders also need to be satisfied. So, they are paid stock dividends. Only high performing firms can issue stock dividends.  

Example: Suppose, Northern Corporation (a fictitious company) has paid $ 191741 worth of stocks as dividends in the year 2011 and $182818 in the year 2010. This means that the value of stock dividends will fluctuate based on decisions of board of directors.