Sometimes you may receive additional shares of stock in a company you already own as a stock dividend instead of receiving a cash dividend. When it is a small percentage, usually less than ten percent, it is often referred to as a stock dividend rather than a stock split. Stock dividends are usually non-taxable (unless they are PIK dividends--see below.) The cost basis accounting for it is exactly the same as a stock split, and the stock split calculator can be used.
Some companies which commonly pay stock dividends include: Archer Daniels Midland (ADM) Tootsie Roll (TR)
Recently, quite a few REIT's (real estate investment trusts) have paid dividends in stock in the form of "payment in kind," "payable in kind," or "PIK" dividends. This was done to conserve cash during the credit crisis. These PIK dividends differ from the regular "dividends paid in stock" described above because the PIK dividend is taxable in full when paid. Your cost basis in the additional shares is the amount of your taxable dividend that you did not receive in cash. It is similar to a mandatory dividend reinvestment. The stock split calculator should not be used for PIK dividends.
Examples of companies paying recent PIK dividends are: Simon Property Group (SPG) Vornado Realty Trust (VNO)
What is the difference between a stock split and a stock dividend? From the investor's perspective, there is no difference--you account for it exactly the same. From the company's perspective, accounting for a stock dividend involves a journal entry transfer from retained earnings to paid in capital, while a stock split does not.
Information provided is intended solely for cash-basis U.S. citizen individual taxpayers and is believed to be accurate for most cases but is not guaranteed. Always consult your personal tax advisor about your own situation. Suggestions are most welcome. Please email our webmaster @ costbasis.com with your comments. If this website has been helpful to you, please consider making a donation to support our efforts.