7508 / What is a “stock dividend”?

A stock dividend is a dividend paid in shares of stock of the distributing corporation to its shareholders with respect to its outstanding stock. A distribution of stock to compensate the recipient for services rendered, for goods provided, or in payment of a debt is not made with respect to the distributing corporation’s outstanding stock and, therefore, is not a stock dividend.¹

A distribution of stock warrants (or other rights to acquire stock of the distributing corporation) is treated in the same manner as a stock dividend so long as the distribution of such warrants is made with respect to the corporation’s outstanding stock (and not as compensation for services, etc.).²

A distribution of stock of the distributing corporation made with respect to outstanding stock rights or convertible securities of that corporation to the owners thereof will also qualify as a stock dividend.³