“Dividends” generally refer to cash dividends, cash payments to stockholders as a distribution of their profits. After all, profits belong to the stockholders.
“Stock dividends” actually refer to distributions of stock, when companies distribute actual stock to stockholders. For example, a 10% stock dividend would give a stockholder who already owns 100 shares an additional 10 “free” shares of stock.
There is some debate over whether dividends are actually good. If you consider that stock represents ownership in a company, then payments back to stockholders represent liquidation of that ownership back to the stockholders. Suppose you hold $100 worth of stock and then receive a $2 dividend. Then your remaining stock must be worth just $98. Are you any better off?
Some people say that “a bird in the hand is worth two in the bush,” that stockholders are better off with certain cash in their pockets than theoretical cash in their investments. You just got a $2 return on your investment – of course you’re better off.
Others say that the $2 dividend is money the company chose not to reinvest in its operations, indicating that its growth prospects are limited.
Generally, stocks that pay dividends are considered safer investments, while stocks that don’t pay dividends are considered riskier “growth” companies.
[Image courtesy of Wikimedia Commons]