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What is a stock dividend?

Stock dividends are issued by a company and increase the number of shares outstanding. Stock dividends are paid out of retained earnings, so a stock dividend would decrease retained earnings. However, common stock increases for the same amount, so the overall impact to total equity is $0.

For example, if the company had common stock outstanding of 1,000 shares and they issued a 20% stock dividend, then they would be issuing another 200 shares of common stock to investors. This would be a debit to retained earnings to fund the increase in common stock outstanding.


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