Question

Briefly explain the difference between a stock dividend, stock split, and a dividend reinvestment plan.

Answer 1

Stock dividend is a option to receive dividends where the dividend reciever receives the dividend in form of shares which are directly credited to his account.

Stock Split is split is where company divides its existing shares in multiple shares. Here the no. of shares outstanding increases. For example common share of $10 par value is splited in 2:1. then the par value of new shares becomes to $5 per share. There is no increase in share capital while only no. of shares increase.

Dividend reinvestment plan is the option in which cash dividend is given to shareholders and is immidiately reinvested into new shares of the company. The full amount of dividend is included in the income of the shareholder.