A stock dividend is a payment made by a corporation to its shareholders in the form of additional shares of stock, rather than cash. This allows companies to reward their investors without depleting their cash reserves. Stock dividends are typically issued in a specific ratio, such as 5%, meaning shareholders receive five additional shares for every 100 shares they own. When a company declares a stock dividend, it can signal financial health and growth potential. Shareholders may benefit from increased ownership in the company, which can lead to higher future returns if the company's value rises. However, stock dividends can also dilute the value of existing shares.