What is one characteristic of a stock dividend?

A stock dividend is characterized by the distribution of additional shares of stock to existing shareholders rather than a cash payment. This type of dividend allows shareholders to retain their investment in the company while increasing their total number of shares owned. As a result, even though the per-share value may decrease slightly—as the total market capitalization remains unchanged—shareholders benefit from owning a larger proportion of the company’s equity.

This method of distributing value can be appealing to companies that want to conserve cash but still reward their shareholders. Companies that issue stock dividends often do so to signal financial strength and the potential for growth, as it may indicate that they are reinvesting profits back into the company rather than distributing them entirely as cash.

Given this characteristic, the other options do not accurately describe stock dividends. For instance, stock dividends do not provide immediate cash, do not reduce total equity, and any tax implications tied to stock dividends are deferred until the shares are sold, rather than requiring immediate payment from shareholders.