Sample Essay

When there is a shortage of cash in a company to pay out cash dividends a company opts for stock dividends. The value of stock dividends is equal to that of cash dividends but instead of paying cash to shareholders it issues additional shares.

People usually prefer cash instead of stock as cash can be reinvested and shareholders would not have a substantial gain with stock dividend.  The preference is for cash dividends as stock dividends would only increase the number of shares and cash inflows would be delayed. It is also a common phenomenon when dividends are declared the share prices decline with a similar amount of dividends declared and the shareholders would not gain on the additional shares.

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