Stock dividends and stock splits are two different corporate actions that can affect the value of company stock. When the bank gives its dividend to the customers in cash, it is called a cash dividend. When the bank gives the dividend through additional stock, it is called a stock dividend. The stock split means splitting existing shares to create more shares. Both terms are nothing alike. Let us discuss some more Differences between Stock dividends and Stock split with the help of the comparison given below.
What is a stock dividend?
In place of cash, stock dividends are distributed to shareholders. Simply put, stocks are being given in instead of cash. Companies now frequently give their devoted shareholders more shares. There are a lot of important calculations going on here. The stock price will decrease if an excessive number of dividends are issued and allowed to continue. Inflation will result from a sharp decrease in stock values.
What is a Stock split?
Stock dividend Vs Stock Split | Difference between Stock dividend and stock split:
- Under the stock dividends, the company issues additional shares to the shareholders in a certain proportion for free. A stock split is nothing but a division or splitting of the face value of a company's shares. In this case, the company divides its share into multiple shares.
- Stock dividend is giving the portion of profit to the shareholders with the mean of additional stocks. A stock split is subdividing the existing stocks. On the other hand, if there is a stock split, there will be no change in the company's share capital or reserves. When they need to tome down their high priced share they opt for the stock split.
- When the company does not have a sufficient amount of hard cash to distribute the profit they go for the stock dividend option. When the company wants to increase the liquidity of shares they declare a stock split.
- Stock dividend causes no change in the face value. Face value decreases in case of the occurrence of the stock split.
- On declaring stock dividends, there is no change in the face value of shares, While in a stock split the face value of share decreases.
- In a stock dividend, the stock price is adjusted as per the additional number of shares that the company issues. As against, in the case of the stock split, the share price gets halved in the ratio.
- Stock dividend increases the share capital of the company on one hand and on the other hand decreases reserves. On the other hand, there won't be any changes to the company's share capital or reserves if there is a stock split.
- Stock dividends require journal entries. While Stock split does not require journal entries.