<p>Well as the text states it is not 'true dividend' despite what the name says. Sometimes naming can become weird. For example, in game theory a whole game is considered to be one of the subgames despite of the fact that sub prefix indicates 'subordinate' so in common English it seems not to make sense.</p>

CC BY-SA 4.0
2022-10-28T08:52:25.300Z
Yet stock dividends are discussed in quite some detail in the chapter on dividends and payout policy. Can this be a coincidence? (I hope it is not, but I cannot see why.)
Richard Hardy
CC BY-SA 4.0
2022-10-28T10:02:20.620Z
@RichardHardy again I think you are reading too much into it. Its just a name for action that gives shareholders something in name only due to endogenous value of shares. Since people are doing this and calling it dividend its not wrong to talk about it
1muflon1
CC BY-SA 4.0
2022-10-28T10:20:44.020Z
OK, perhaps it is that way... Confusing...
Richard Hardy
CC BY-SA 4.0
2022-10-28T11:34:27.077Z
Don't blame game theory, it's much worse in set theory!  ;-)
VARulle
CC BY-SA 4.0
2022-10-28T07:57:38.727Z
2022-10-28T07:57:38.727Z
1muflon1
<p>According to chapter 16 of Hillier et al. &quot;Fundamentals of Corporate Finance&quot; (3rd ed., 2017) (<a href="https://www.mheducation.co.uk/fundamentals-of-corporate-finance-4e-9781526848628-emea-group" rel="nofollow noreferrer">here</a> is a link to a slightly different edition), instead of paying a cash dividend a company could issue new shares to the existing owners. That is called a stock dividend.</p>
<blockquote>
<p>Another  type  of  dividend  is  paid  out  in  shares  of  equity.  This  type  of dividend is called a share or stock dividend. A stock dividend is not a true dividend, because it is not paid in cash. The effect of a stock dividend is to increase the number of shares that each owner holds. Because there are more shares outstanding, each is simply worth less.</p>
</blockquote>
<p>I do not see how this could be considered a form of dividend. There is no cash involved, just a stock split. (A counterexample would be share buyback. I can see why this is a form of dividend, because investors can cash out some of their stocks.)</p>

<corporate-finance>
Confused about the idea and purpose of stock dividends
Richard Hardy
# Confused about the idea and purpose of stock dividends

(Asked by: username_0 on 2022-10-28)

According to chapter 16 of Hillier et al. "Fundamentals of Corporate Finance" (3rd ed., 2017) ([here](https://www.mheducation.co.uk/fundamentals-of-corporate-finance-4e-9781526848628-emea-group) is a link to a slightly different edition), instead of paying a cash dividend a company could issue new shares to the existing owners. That is called a stock dividend.

> Another type of dividend is paid out in shares of equity. This type of dividend is called a share or stock dividend. A stock dividend is not a true dividend, because it is not paid in cash. The effect of a stock dividend is to increase the number of shares that each owner holds. Because there are more shares outstanding, each is simply worth less.

I do not see how this could be considered a form of dividend. There is no cash involved, just a stock split. (A counterexample would be share buyback. I can see why this is a form of dividend, because investors can cash out some of their stocks.)

**Tags:** corporate-finance


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## 1 answers

### Answer by username_1 on 2022-10-28. Score: 1

Well as the text states it is not 'true dividend' despite what the name says. Sometimes naming can become weird. For example, in game theory a whole game is considered to be one of the subgames despite of the fact that sub prefix indicates 'subordinate' so in common English it seems not to make sense.

> **Comments:**
> **username_0**: Yet stock dividends are discussed in quite some detail in the chapter on dividends and payout policy. Can this be a coincidence? (I hope it is not, but I cannot see why.)  
> **username_1**: @RichardHardy again I think you are reading too much into it. Its just a name for action that gives shareholders something in name only due to endogenous value of shares. Since people are doing this and calling it dividend its not wrong to talk about it  
> **username_0**: OK, perhaps it is that way... Confusing...  
> **username_2**: Don't blame game theory, it's much worse in set theory!  ;-)  

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