Financial Accounting
Remember from your accounting class the two primary reasons for declaring stock dividends. First, directors use stock dividends to keep the stock affordable. If a corporation is making profits and fails to pay out cash dividends, the price of its stock could rise so high that investors might be discouraged from purchasing it. Not every successful company, of course, sees a high stock price as a problem. In 2005, Warren Buffet's company Berkshire Hathaway had not declared a dividend since 1967, and its price was roughly $75,000 per share.

Second, stock dividends provide evidence of management's confidence that the company is doing well and will continue to do so.

Source: Larson, Wild, and Chiappetta, Principles of Financial Accounting, 17th ed. (New York: McGraw-Hill, 2005), p. 507.