Large stock dividend

Definition

A large stock dividend is a distribution of additional shares to shareholders that significantly increases the total number of shares outstanding, typically more than 20-25% of the existing shares. It does not involve any cash outflow and aims to increase the liquidity of the stock.

5 Must Know Facts For Your Next Test

1. Large stock dividends are recorded by capitalizing retained earnings equal to the par or stated value of the newly issued shares.
2. They do not affect a company's total stockholders' equity but redistribute amounts within equity accounts.
3. The primary reason for issuing large stock dividends is to make shares more affordable and attractive to investors by reducing the market price per share.
4. Unlike small stock dividends, large stock dividends are considered similar to stock splits in their impact on financial statements.
5. When a large stock dividend is declared, it requires board approval and must be disclosed in financial statements.

Review Questions

Related terms

Retained Earnings:

Accumulated net income that is retained by a company rather than distributed to shareholders as dividends.

Stock Split: An action taken by a company to divide its existing shares into multiple shares to boost liquidity without affecting total shareholders' equity.

Cash Dividends: Payments made in cash to shareholders from a company's profits or retained earnings.