What are the effects of stock dividends on investors compared to cash dividends?

How are investors affected by a firm opting to pay out a stock dividend instead of a cash dividend?


Answer:

A stock dividend is treated as a stock split. By giving out more shares to investors, it dilutes the value of each share. If the market price per share stays the same, it is a benefit to the company in not using cash, and a benefit to stockholders in not being directly taxable.
So, stock dividends, in theory, have little or no value. They are mostly psychological.