Question

Compare and contrast share dividend with cash dividend used by firms in their payout policy.

Answer 1

Share dividend and cash dividend both are paid as distribution of profits to shareholders. In case of share dividend, company issues its own stock to shareholders without receiving consideration while under cash dividend company pays cash to shareholders as distribution. The share dividend declared would not impact the overall stockholder's equity while in cash dividend stockholder's equity would reduce. In case of share dividend there would be no tax payable by shareholders on dividend and thus double taxation is avoided while in case of cash dividend cash will have to be paid by shareholders and thus it would be subject to double taxation.