Question

A stock dividend provides a stockholder with more shares of stock, but his or her percentage of ownership in the company is no larger than before. true false

Answer 1

Answer: false

Explanation: A stock dividend is a payment to shareholders that is made in shares rather than in cash. The stock dividend has the advantage of rewarding shareholders without reducing the company's cash balance.

For example, this means that the pool of available stock shares in the company increases by 5%, diluting the value of existing shares.

Therefore, in this example, an investor who owned 100 shares in a company will own 105 shares once the dividend is executed. But the total market value of those shares remains the same.