What is a Stock Dividend?

A stock dividend is a percentage of a company's earnings paid out to stockholders. Dividends are awarded periodically by companies to individuals holding their stock. To earn a stock dividend, the stockholder must be a shareholder of record on the date the dividend is paid.

Many publicly held companies, and even some privately held companies, issue shares of stock to individuals. Each share of stock represents a partial ownership in the company. For example, if a company issues 100 shares of stock to 100 people, each of those 100 people owns 1 percent of the company.

When a company earns a profit, it is called its earnings. The earnings can be used or invested in a number of ways. Earnings can be invested back into the company, paid out as employee bonuses, or shared with stockholders who are partial owners.

When a company decides to share its earnings with stockholders, this is called a dividend. Many companies, especially large companies, pay set dividends periodically. For example, General Electric has paid a dividend every quarter since 1899.

A stock dividend is paid per share to shareholders of record at the time when the dividend is issued. For example, if a company issues a dividend on 31 January, then any individual who owns a share of that stock on 31 January receives that dividend. This is true even if the shareholder has sold the stock by the time the dividend is actually paid out and the money goes into the investor's account.

A dividend is per share, so if a person owns multiple shares, he or she can earn multiple stock dividend payments. For example, if an investor owns 100 shares of a stock that pays a $0.15 US Dollars (USD) dividend, that individual investor receives $15 USD. The dividends are normally deposited into the brokerage account of the individual investor as a cash deposit or can be sent in check form.

For most dividends, if an investor receives the dividend, the investor will have to pay taxes on the dividend as standard income. In the United States, for example, if an investor has stock dividends of more than $10 USD, the investor will receive a 1099-DIV form from the company. The investor will then pay income on the amount of money earned from his stock dividend at his standard tax rate.