A dividend payable in stock (a stock dividend)

Question

Quizplus · Accepted Answer

While a stock dividend increases the total number of shares you hold, it does not necessarily increase your net worth. This is because the market value of each share generally decreases following a stock dividend, which offsets the increase in the number of shares you hold. Additionally, stock dividends are typically issued by financially healthy companies as a means of reinvesting profits into the business rather than distributing cash to shareholders. Therefore, choice A is incorrect, and choice B is not necessarily true. Finally, choice D is incorrect because a stock dividend does not involve an exchange of one type of stock for another.

A Dividend Payable in Stock (A Stock Dividend)