Stock Dividends / Stock Splits

When you receive a stock dividend, you actually receive additional shares of a company's stock based on the number of shares you already own. This is not the same as a regular or cash dividend that you use to reinvest in more shares. With a true stock dividend, you have no option to receive cash.

Stock dividends are the same as stock splits where you end up with more shares than you previously had, but at a lower price. (Or less shares than you previously had at a greater price in the case of a reverse split.)

Stock dividends / stock splits are normally not taxable (subject to some exceptions) because your economic position as a shareholder generally doesn't change as a result. The company issues more shares to each shareholder based on the number of shares they own. The total capitalization of the company and the ownership percentage of each shareholder doesn't change, so the value of your holding is unchanged.

Stock dividends are usually expressed as percentages. If a company declares a 10% stock dividend, for example, it issues one share for every ten shares owned.  In stock split terms this would be a 1 for 10 stock split because you get one extra share for every ten shares owned going into the split.

If you receive a stock dividend due to a stock split, you have to recalculate your cost basis for each share owned, the figure used to determine whether you have made a profit, when you finally sell the stocks. (Essentially, the basis is your cost per share adjusted for such events as the stock dividend).  

Most brokers report stock dividends on their trade history reports or monthly statements as stock splits, but there is no consistent format of how these are reported from one broker to the next.  So most trade accounting software programs do not adjust for stock splits automatically.

However, TradeLog™ features an Adjust for Stock split function which enable investors to make the necessary adjustment in a few easy steps. This function will change the number of shares owned as well as the price of these shares, thereby changing the cost basis of each share while the total amount paid for all of your open shares remains the same.

Learn More... Dividend Reinvestments (DRIPs)