Optional Cash/Stock Dividend and Dilution
If a company announces a stock dividend, then it pretty much works like a stock split (and everyone’s ownership % remains the same, so no dilution).
Sometimes companies offer the option of a cash or stock dividend (example, Royal Dutch Shell). In this case, does taking a stock dividend lead to dilution?
I guess when a stockholder takes the stock dividend option, the number of shares he owns increases (while keeping the number of shares owned by other constant). But since he gives up his cash dividend, that cash gets shared equally by all shareholders, so that offsets the “dilution” caused to other shareholders.
Does that make sense or am I missing something here? I always take the cash option btw, but I’ve been thinking that the stock dividend might make better sense for long-term holds for tax purposes.