What is the Difference Between Stock Dividend and Stock Split?

The main difference between a stock dividend and a stock split lies in their purpose and impact on the company's share capital and reserves. Here are the key differences between the two:

1. Purpose: A stock dividend is a distribution of additional shares to existing shareholders, usually declared by the company's board of directors when the company lacks cash liquidity. On the other hand, a stock split is a corporate action that increases the number of outstanding shares to make them more affordable and increase their liquidity.
2. Stock Capital and Reserves: Stock dividends increase the share capital of the company while decreasing reserves. In contrast, a stock split does not change the company's share capital and reserves.
3. Share Price and Ownership: A stock dividend may result in a decrease of the stock price, while a stock split dilutes the stock price. Both actions do not change the proportionate ownership of shareholders in the company.
4. Bookkeeping: Stock dividends require unique journal entries, whereas stock splits do not have a direct impact on the accounting records.
5. Ratio: Stock splits are usually expressed as a ratio, such as 2-for-1 or 3-for-1, representing the division of each existing share into new shares. Stock dividends do not have a specific ratio and are declared in proportion to the shareholders' existing holdings.
6. Public Perception: Shareholders may perceive little difference between a stock dividend and a stock split, but the accounting for stock dividends is unique and requires separate journal entries.

Comparative Table: Stock Dividend vs Stock Split

Here is a table comparing the differences between stock dividends and stock splits:

In summary, stock dividends involve the issuance of additional shares to existing shareholders, while stock splits divide existing shares into multiple shares. Both actions increase the number of shares outstanding, but they serve different purposes and have different effects on share ownership and company financials.