A Stock dividend refers to corporate dividends compensating shareholders or employees in the form of stocks instead of money. Companies issue stock dividends typically in the form of a certain percentage per share. For example, a company may issue a stock dividend of 3%, meaning that someone with 100 shares would receive three more shares. Stock dividends may be an attractive form of compensation for corporations because it does not involve spending cash, and stockholders may prefer a stock dividend because it can receive capital gains tax treatment, unlike cash dividends.
Like with any form of dividends, directors of companies must follow the guidelines of their corporate charter on issuing stock dividends. Often, stockholders must approve the issuance of stock dividends, especially where the dividend may have a high dilution effect on the other stocks.
[Last updated in May of 2022 by the Wex Definitions Team]