The subject of dividend policy is one of the most important issues in recent decades. Stock Dividend is considered as an effective factor for creating investment opportunities in investment companies. The more the dividend payout is, the more the external financing sources need for implementing investment projects. This factor can affect greatly on companies stock price in future. On the other hand, most company shareholders are interested to have cash dividend. Hence, the mangers always must establish equilibrium among the shareholders' different interests; because the investment desirable chances must not be lost and also approved cash dividend must be paid to shareholders.
The present paper verified the relationship among free cash flow, profitability position and amount of stock dividend in Tehran Stocks Exchange during the period 1376-1387 (1997-2008). The data is collected by Rahavard Novin and Tadbirpardaz and are analyzed by using Fixed Effect panel data and Eviews 4. The results showed that there is a significant relationship between profitability position and stock dividend, but there is no significant relationship between free cash flow and the amount of stock dividend in Tehran Stock Exchange