A stock dividend is a distribution of additional shares of a company’s stock to its existing shareholders as a form of dividend payment. Instead of paying cash, the company uses its earnings to issue additional shares to its shareholders in proportion to their existing holdings.
For example, if a company announces a 5% stock dividend, shareholders who own 100 shares will receive an additional 5 shares (5% of 100) as a dividend. This increases the total number of outstanding shares of the company, but the proportional ownership of each shareholder remains the same.
Stock dividends are often used by companies as a way to reward their shareholders without reducing their cash reserves. Shareholders can choose to keep the additional shares or sell them on the market to realize their value.