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In lieu of cash, a company may choose to pay its dividend in the form of stock. Instead of each shareholder receiving, say $2 for each share, they may receive an additional share. A stock dividend (also known as a scrip dividend) can be the economic equivalent of a stock split.
Bottom Line. Dividends are the cash or stock distributions that some companies and mutual funds pay to shareholders. While cash dividends result in immediate cash payments to shareholders, stock dividends increase the number of shares that investors in a company or fund own.
What Is Cash-and-Stock Dividend? Cash-and-stock dividend, as its name implies, is when a corporation distributes earnings to its shareholders in both cash and stock as part of the same dividend.
Stock dividends are thought to be superior to cash dividends as long as they are not accompanied by a cash option. Companies that pay stock dividends are giving their shareholders the choice of keeping their profit or turning it to cash whenever they so desire; with a cash dividend, no other option is given.
Why Do Companies Issue Stock Dividends? Dividends, whether in cash or in stock, are the shareholders' cut of the company's profit. They also are a reward for holding the stock rather than selling it. A company may issue a stock dividend rather than cash if it doesn't want to deplete its cash reserves.
A company's board of directors announces a cash dividend on a declaration date, which entails paying a certain amount of money per common share. After that notification, the record date is established, which is the date on which a firm determines its shareholders on record who are eligible to receive the payment.
Cash dividends are payments made in cash to shareholders based on the number of shares they hold. Stock dividends are payments to shareholders made in the form of additional shares of stock.
The companies use a very simple way to calculate the dividend they wish to pay to the shareholders in the form of cash. It is as follows: Cash dividend = Dividend per share x No of shares held by the shareholder. The organizations declare the dividends which are on a per share basis.