In stock market terminology, the term Stock Dividend refers to a dividend paid out to shareholders in shares of stock instead of cash. A Stock Dividend will generally be paid out in proportion to the amount of stock owned by the stockholder. A stock’s dividend, on the other hand, is generally paid out to shareholders in cash.
For example, a Stock Dividend might make sense for a company that has had a successful quarter and wants to reward its stockholders, although the company cannot disburse cash since it needs to finance continuing operations. The company can instead issue a Stock Dividend in lieu of a cash dividend, offering one share of stock for every 10 shares held by the stockholder. Therefore, if the stockholder owns 10,000 shares of stock, they will receive a thousand additional shares as a dividend. One advantage of a Stock Dividend is that taxes on the stock need not be paid until the stock is sold, while cash dividends get taxed in the year they are paid out.