A stock dividend refers to a method where a company converts its retained earnings or capital reserves into share capital and distributes these shares free of charge to existing shareholders. Stock dividends do not involve actual cash payments from shareholders; instead, the company transforms a portion of its earnings or capital into shares for shareholders. This is also known as a "bonus share." The main purpose of stock dividends is to expand the share capital, improve the capital structure, and enhance the market liquidity of the stock.