What are stock Dividends?
Stock dividend (bonus issue) — paid in additional shares instead of cash. You end up holding more shares, but each is worth proportionally less, so the value of your position is unchanged at the moment of distribution.
On the ex-date, the stock price is typically adjusted downward to reflect the increase in the number of shares outstanding, all else being equal. Shareholders may therefore see a decline in their unrealized P&L when the market opens. The price adjustment happens immediately on the ex-date, while the offsetting bonus shares are not credited until the payment date
Once the distribution is complete, the shareholder’s position changes from shares only to shares (at the adjusted lower price) + bonus shares, with a combined value intended to approximate the pre-adjustment position, all else being equal. The total cost basis of the position remains unchanged, while the cost basis per share is adjusted downward to reflect the additional shares.
Four Key Dates
Declaration Date: The date on which the board declares a stock dividend, specifying the payout ratio, and the ex-dividend, record and payment dates.
Ex-Dividend Date: Investors who hold the stock before this date are generally entitled to receive bonus shares. Investors who buy on or after the ex-dividend date are not eligible.
Record Date: The date on which the company determines which shareholders are officially entitled to receive bonus shares. Timing relative to the ex-dividend date varies by market.
Payment Date: The date on which eligible shareholders’ bonus shares are credited to their accounts.