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Most dividends are paid in the form of cash -- for example, a company might declare a quarterly dividend of $0.50 per share. However, though it's less common, companies also have the option of declaring stock dividends. When paying a stock dividend, a company issues additional shares of stock proportional to existing investors' holdings.

Before these stock dividends are handed out, they're known as "stock dividends distributable" and are listed in the stockholders' equity section of the company's balance sheet.

Calculating stock dividends distributable
When a company declares a stock dividend, it may do so as a percentage of shares outstanding, such as a "10% stock dividend." The first step in calculating stock dividends distributable is to divide that percentage by 100 to convert it into a decimal. In our example, 10% would become 0.10.

Next, multiply the company's total outstanding shares by this decimal. You can find the number of outstanding shares in most stock quotes.

Finally, multiply this amount by the par value of the stock, which can usually be found in the stockholders' equity section of the balance sheet. This is typically a small amount, such as $0.01, and it has no relation to the actual share price of the stock. Once you multiply these figures by one another, the result is the amount the company would list as stock dividends distributable.

Or, if the stock dividend is declared as a certain number of shares per outstanding share (for example, "0.05 shares per outstanding share"), simply skip the step where you divide by 100.

An example
Let's say a company declares a stock dividend of 0.05 shares per outstanding share, and there are 100 million total shares outstanding before the stock dividend is paid. A quick look at the balance sheet tells us that the stock's par value is $0.01 per share, so the stock dividend distributable that the company will list on its balance sheet can be calculated as follows:

Now that you've brushed up on dividends, you might be ready to check out our Broker Center for the best places to park your money.

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