1.1.12.2 Stock Dividend
Corporation rewards the investors by declaring additional free shares to the investors based upon the proportion of holdings of the investors as of the record date. Whenever the board of directors feel that the money lying in the Reserve account as explained above is more than adequate, they would convert a portion of the reserve into Capital by issuing stock dividends. The issuance of stock dividends does not entail any additional cost to the investor.
If the company issues a stock dividend of 1: 2 (Investors would get an additional share for every two shares held by them), the outstanding units of the company increase by 50% over the existing outstanding units. The market value of the stock usually comes down after a stock dividend.
Parent topic: Corporate Actions on Securities