Well, the point is that paying a stock dividend is equivalent to doing nothing. All that happens is that 1 share turns into for example 1.05 shares. Price per share should go down by ~ 5%, but total market cap stays the same. A rational shareholder should completely indifferent as to whether the company gives out a stock dividend or not.

For a cash dividend that's not true. Something real happens: the company has less cash afterwards (and the shareholder more).

There's a school of thought that says that the value of share should be the discounted sum of all future _cash_ dividends. According to it a company that only does share dividends should be worth nothing.