The primary purpose of a stock dividend is to:

The primary purpose of a stock dividend is to provide shareholders with additional shares. When a company declares a stock dividend, it distributes additional shares to existing shareholders at no cost, proportional to their current holdings. This practice does not involve cash outflow from the company; instead, it increases the number of shares outstanding.

While shareholders receive more shares, the overall value of their investment remains the same immediately after the dividend is distributed, as the price per share typically adjusts downward to reflect the increased number of shares. This approach is often used to reward shareholders without depleting the company’s cash resources, making it appealing during times when the company prefers to retain capital for growth or other investments.

The other choices do not accurately reflect the primary purpose of a stock dividend. For example, while it can affect voting power due to the increase in shares, the main intention is not to enhance voting power. Similarly, stock dividends do not directly impact cash flow for shareholders since no cash is paid out. They also do not reduce the company’s total equity; rather, the equity remains the same, although it is redistributed across a greater number of shares.