When stock dividends are distributed, what happens to the total stockholder's equity?

When stock dividends are distributed, total stockholder's equity remains unchanged. This is because a stock dividend does not constitute a distribution of cash or assets; instead, it involves issuing additional shares to existing shareholders.

In accounting terms, the value of the stock dividend is transferred from retained earnings to paid-in capital. As a result, while the number of outstanding shares increases and the company's retained earnings decrease by the same amount, the overall total stockholder's equity does not fluctuate. This is a key point in understanding how stock dividends function—though shareholders receive more shares, the market value of each share typically adjusts accordingly, leaving the total equity unchanged.

This concept is vital because it emphasizes that stock dividends are more about providing shareholders with additional ownership in the company, without actually impacting the overall financial position of the company in terms of equity.