Fundamental difference between Stock split and stock dividends?



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Both result in more number of shares in the hands of shareholders, however in both cases the shareholder's value remains same.
What is the implications for a shareholder in these two cases?
And when would a company choose one over other?

1 Answer(s)


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In stock split a stock is split commonly in the ratios such as 2:1, 3:1 or 4:1.
It is done when the cash surplus of the company is declining. In order to have more cash surplus they split the stock. But this does not change the market capitalization of the stock as every share held by investors is doubled while the face value (par value) of the stock is adjusted according to the split.

Stock dividend is given by the company with surplus of cash reserves. As the company does not want to part from the surplus they issue a stock dividend or bonus stock. In stock dividend the face value of the stock before and after dividend is the same. Stock bonus signifies a healthy business of the company with surplus reserves

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