Final answer:
A stock dividend distributes additional shares to shareholders, maintaining their existing ownership percentage without changing the total stockholders' equity. The book value per share may decrease due to the increase in shares.
Step-by-step explanation:
A stock dividend is a payment made by a corporation to its shareholders, usually in the form of additional shares of stock. When a company issues a stock dividend, it distributes additional shares to existing shareholders proportional to their current holdings, thereby adjusting the total number of outstanding shares. This is different from a cash dividend which is a payout of profits in the form of cash to shareholders. The ownership percentage for each shareholder remains the same because although the number of shares increases, each shareholder receives a proportional amount of additional shares, maintaining their relative stake in the company. Therefore, a stock dividend:
- Has no effect on each stockholder's ownership percentage
- Does not cause total stockholders' equity to decrease
- Does not cause total stockholders' equity to increase
However, even though the total equity remains the same, the book value per share may decrease because the number of shares has increased.