What happens when a stock dividend is paid out?

When a stock dividend is paid out, shareholders receive additional shares of the company's stock instead of cash. This increases the total number of shares outstanding, which can dilute the value of existing shares. However, the overall value of a shareholder's investment remains the same, as the stock price typically adjusts downward to reflect the increased share count. Stock dividends are often used by companies to reward shareholders while preserving cash for reinvestment.