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FIN253 Fundamentals Of Investment

Fundamentals Of InvestmentTU Board 2080

Distinguish between cash dividend and stock dividend.

2

Answer

· Based on the official syllabus and past papers
Updated 
| **Feature**          | **Cash Dividend**                          | **Stock Dividend**                        |
|----------------------|--------------------------------------------|--------------------------------------------|
| **Definition**       | Payment of cash to shareholders as profit.  | Issuance of additional shares to shareholders instead of cash. |
| **Payment Form**     | Cash (monetary)                            | Additional shares (non-monetary)           |
| **Effect on Equity** | Reduces retained earnings (cash outflow).  | No change in total equity (shares issued). |
| **Tax Implications** | Taxable income for shareholders.           | Non-taxable (no immediate cash inflow).   |
| **Market Impact**    | May reduce stock price per share.          | Typically increases share count, diluting per-share value but maintaining total market cap. |
| **Purpose**          | Distribute profits to shareholders.        | Retain cash while rewarding shareholders. |

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