Reference no: EM132350212

What is the difference between a stock dividend and a stock split?

If companies are low on cash, they may decide to pay their investors with a stock dividend which is basically a dividend given in the form of additional shares instead of actual cash. This gives the shareholder the opportunity to either keep the shares with the hopes of a better investment or the shareholder can simply sell those shares for a cash dividend. Sometimes companies seek strategic ways to increase the number of shares sold with the hopes of increasing liquidity of the shares. They do this by dividing existing shares to create multiple shares so they can lower the trading price to attract more investors. This action can take place when a firm's share price has risen high and the price needs to be reduced to the more popular trading price. Despite the stock split, this does not add any real value to the stocks, it just simply makes it more attractive to investors by reducing the price per share. I think this is a very strategic opportunity for any company to consider and evaluate based on the performance of the company.