Contrast the differences between a stock dividend and a stock split.
- Contrast the differences between a stock dividend and a stock split.
Stock Dividend: A stock dividend is a corporate action in which a company distributes additional shares of its own stock to existing shareholders, usually in proportion to their current holdings. This distribution is made as a dividend rather than cash and results in shareholders receiving more shares in the same company. Stock dividends are typically expressed as a percentage, such as a 10% stock dividend, indicating the additional shares given for every 10 shares held by a shareholder.
Stock Split: A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing additional shares to existing shareholders. Simultaneously, the nominal or par value of each share is reduced. Stock splits are often expressed as ratios, such as 2-for-1 or 3-for-1. In a 2-for-1 stock split, for example, each shareholder receives an additional share for every share they already own, effectively doubling the number of shares in circulation without changing the total value of the investment. Stock splits are usually carried out to make shares more affordable and increase liquidity.
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