A stock dividend can be described as the distribution of reward from a part of the organization's income and is paid to a class of its investors.
Stock Dividends are determined and overseen by the board of directors of the company, however they must be agreed upon by the company’s investors through a voting.
A stock dividend acts as a token prize paid to the investors for their investment in a company’s stock, and it generally begins from the net profits of the organization.
Stock dividends provide a tax benefit for the investors of the company. The stock dividend, similar to any stock offer, is nontaxable till the shareholder sells it except the organization provides the alternative of accepting the stock dividend in cash or in more company shares.
A stock dividend may necessitate that the recently received stocks are not to be sold before a specific time frame. This holding period on a stock dividend generally starts the day after it is bought. Understanding the holding time frame is significant for deciding qualified stock dividend tax treatment.
While the significant bit of the profits stays within the company as held benefits, it is to be utilized for the organization’s current and future business exercises, the remainder can be distributed to the investors of the company as a stock dividend.
In any case, now and again, organizations may still distribute stock dividend payments even when they are unable to ensure appropriate benefits. They may do as such to keep up their set up track record of making ordinary regular stock dividends.