India, June 6 -- Companies share their profits with investors by way of dividends. This is one of the reasons why investors invest in stock markets, the other reason being capital appreciation. Dividends can be of two types, cash dividends (made in terms of cash) and stock dividends (investors receive additional shares of stock when a company declares a stock dividend). A firm may opt for stock dividends for a number of reasons, including inadequate cash-in-hand or a desire to lower the price of the stock on a per-share basis to prompt more trading and increase liquidity. The term "stock split" can also apply to stock dividends.
Essentially, dividends mean that an investor gets paid for simply owning the stock. For example, company 'X' pay...