Ask the Institute

DATE: February 18, 2014

QUESTION:

Can you explain what a stock dividend is?

ANSWER:
A stock dividend is a payment that a company makes to its shareholders. When the Board of Directors of a company decides to pay a dividend, the first step is to make a public announcement.

This announcement is known as the "dividend declaration," and the day this announcement is made is known as the "declaration date." The dividend declaration announcement identifies two specific dates, the "date of record" and the "payment date."

The date of record is the day that stock must be owned in order for an investor to qualify to receive the dividend, and the payment date is the actual day that the dividend payment is made.

Dividends are often paid in cash, but they do not have to be paid in cash. Sometimes a company chooses to pay dividends in shares of stock, and this is referred to as a stock dividend. To learn more about stock dividends, view this segment of "Ask the Institute."