Stock dividends

Stock Dividends

Corporate distributions of additional shares to existing shareholders instead of cash, allowing companies to reward shareholders while conserving cash resources.

For instance, a corporation might declare a 5% stock dividend, issuing five additional shares for every 100 shares currently held, increasing outstanding shares from 10 million to 10.5 million while each shareholder maintains the same proportional ownership.

Stock dividends require journal entries that transfer amounts from retained earnings to permanent equity accounts (common stock and additional paid-in capital). Small stock dividends (less than 20-25%) are recorded at market value, while large stock dividends use par value. Unlike cash dividends, stock dividends don’t reduce total equity or assets but redistribute equity among different accounts.