A dividend is a distribution of the corporation's income to shareholders. Common stockholders own equity in the company, which allows them to share in profits in the form of dividends.
Cash dividends are the most common form of dividends and are issued at the declared dividend rate.
For example, if the dividend rate is 0.05 and a shareholder owns 500 shares, the total dividend the shareholder will receive is $25.
A Stock Dividend is a new issue of shares that increases market capitalization. A stock dividend has the same effect on the number of shares outstanding and earnings per share as a stock split.
Both stock dividends and stock splits tend to occur when a company perceives its stock as being overvalued. Since a stock split or stock dividend is usually taken as a positive signal from management about earnings potential, the share price tends to rise after either action.
A stock to examine for dividends and splits is Apple:
On February 6, 2014, Apple paid out dividends at a 3.05 dividend per share rate to stockholders of record.
On February 26, 2005, Apple stock had a 2:1 stock split. The pre-split price per share was 88.99, and the post-split share price was 44.86. The share price has roughly halved because the number of outstanding shares has doubled, thus maintaining constant market capitalization.