Canadian Securities Course (CSC) Level 1 Practice Exam

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What is the difference between cash dividends and stock dividends?

Cash dividends are paid in stocks, stock dividends are in cash
Cash dividends offer voting rights, stock dividends do not
Cash dividends are in cash, stock dividends are in additional stock
Cash dividends are not paid regularly, stock dividends are

The correct answer is: Cash dividends are in cash, stock dividends are in additional stock

The distinction between cash dividends and stock dividends lies in their form of distribution to shareholders. Cash dividends are payments made in cash to shareholders, representing a portion of a company's earnings. This means that investors receive actual cash that they can use or reinvest as they see fit. On the other hand, stock dividends are issued in the form of additional shares of stock. This increases the number of shares held by existing shareholders but does not provide immediate cash liquidity. Understanding this difference is key for investors in assessing how a company is distributing its profits and the implications for their investment strategy. Cash dividends provide immediate monetary benefit, while stock dividends reflect a strategy of reinvesting earnings back into the company.