When a company makes a profit, it can choose to distribute cash, stock or other assets as dividends to its stockholders. If a company issues a stock dividend, it increases the number of shares outstanding, which is the total amount of shares investors own in the company. Each shareholder receives a number of shares that is in proportion to their ownership in the company. Each share of stock is worth less after the dividend, but because there are more shares outstanding, the company's value and the value of each stockholder's investment remains the same.
1. Determine the size of a company's stock dividend from its dividend announcement, which you can find in the investor relations section of a company's website or annual report. For example, assume a company announced it will pay a 5 percent stock dividend.
2. Find the amount of shares outstanding in the "Stockholders' Equity" section of the company's most recent balance sheet before the dividend. You can find a company's balance sheet in its 10-Q quarterly reports or its 10-K annual reports. You can obtain these reports from the investor relations section of its website, or from the U.S. Securities and Exchange Commission's EDGAR database. In this example, assume the company has 100,000 shares outstanding before the stock dividend.
3. Multiply the size of the stock dividend by the number of shares outstanding before the stock dividend to calculate the number of shares the company distributed in the stock dividend. In this example, multiply 5 percent, or 0.05, by 100,000 to get 5,000 shares.
4. Add the result to the number of shares outstanding to calculate the number of shares outstanding after the stock dividend. In this example, add 5,000 shares distributed to 100,000 shares outstanding before the stock dividend to get 105,000 shares outstanding after the stock dividend.
- Comstock/Comstock/Getty Images