The company’s board of directors will then decide how much of these earnings will be paid out to shareholders and how much will be reinvested in the company.
On what is called the “date of declaration,” the board of directors defines a certain dividend amount to be paid to investors holding the company’s stock on a specific date.
However, they also have other options for dividend payments, including property dividends, scrip dividends, liquidating dividends and stock dividends.
Stock dividends differ slightly from stock splits, which are characterised by a payment in stock of more than 25% of outstanding shares.
On the “date of record,” the dividends are assigned to the holders of the company’s stock.
On the “date of payment,” the company makes payment of the dividends.
Another reason to issue stock dividends could be to capitalise a portion of retained earnings.Such a reduction of retained earnings can be used as a means of limiting the possibility of future dividend payments.At the end of each quarter, the company will declare its earnings in its quarterly financial statement.For a long-term investor, a stock dividend can also be a way of re-investing in a company that may grow and increase equity value in the future.A related benefit is that investors planning to buy more of a particular stock can avoid broker commission fees in acquiring more shares.