Principles of Managerial Finance, 15th Edition

14.6 Other Forms of Dividends

1. LG5

2. LG6

Two common transactions that bear some resemblance to cash dividends are stock dividends and stock splits. Although the stock dividends and stock splits are closely related to each other, their economic effects are quite different from those of cash dividends or share repurchases. Whereas cash dividends and repurchases fundamentally transfer money from the firm to investors, the effects of stock dividends and stock splits are mostly cosmetic.

Stock Dividends

A stock dividend is the payment, to existing owners, of a dividend in the form of stock. Often firms pay stock dividends as a replacement for or a supplement to cash dividends. In a stock dividend, investors simply receive additional shares in proportion ...