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Answer Posted / tarun
A stock dividend is a pro-rata distribution of additional
shares of a company’s stock to owners of the common stock.
A company may opt for stock dividends for a number of
reasons including inadequate cash on hand or a desire to
lower the price of the stock on a per-share basis to prompt
more trading and increase liquidity (i.e., how fast an
investor can turn his holdings into cash). Why does
lowering the price of the stock increase liquidity? On the
whole, people are more likely to buy and sell a $50 stock
than a $5,000 stock; this usually results in a large number
of shares trading hands each day.
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