A stock dividend is when the company uses the money that would ordinarily go to pay shareholder dividends but instead uses it to buy additional shares for the shareholder. The stock split occurs when the company issues new shares (2 or more) for every existing share held by investors. The former action decreases the overall float in the marketplace, which means the share price is likely to be driven up—good for investors if they want to sell. The latter is dilutive and increases the float by doubling the number of shares available for purchase.
It really depends on the company. For instance, Apple split its stock 7:1 in 2014, which drove the price down significantly and made it more attractive for retail buyers (Stock Split, 2019). Because many retail buyers view Apple as at the forefront of the tech industry, they were willing to buy. Apple, too, has been conducting share buybacks worth billions of dollars, thereby reducing its float after the split and driving the share price back up and increasing the overall value of the stock.
Thus, if it is a company like Apple, I will gladly take the stock split because I know that company is authorizing billions in share buybacks each year, which means all those new shares I was awarded as a result of the split will increase in value. Also, with the Federal Reserve launching a new de facto round of quantitative easing it appears that the equities market is being propelled to new heights. Therefore, a stock split coming from a company like Apple will reward investors handsomely over time. But coming from a company that is drowning in debt and is only splitting the stock with the intention of satisfying debt holders, the shares are likely to decrease in value as the company’s shares are shorted on the open market. For that reason, it really depends on the company and the company’s overall objective.
References
Stock Split. (2019). Retrieved from https://www.stocksplithistory.com/apple/
Stock exchange: An exchange where shares of stock and common stock are sold and purchased. Common exchanges are the New York Stock Exchange and American Stock Exchange. Secured bonds: A secured bond is a bond issued with the backing of collateral. A common example of a secured bond would be a mortgage bond. If the bond is defaulted on, the title of the collateral is transferred to the bondholder. Factoring: Factoring occurs
If the board of directors approves a 10% stock dividend, each stockholder will get an additional share for each 10 shares held. "A stock dividend does not involve cash. Rather, it is the distribution of more shares of the corporation's stock. Perhaps a corporation does not want to part with its cash, but wants to give something to its stockholders. If the board of directors approves a 10% stock
Dividend Policy What are the practical considerations which are likely to influence a firm's dividend policy? Does a firm's dividend policy matter? Inside a firm's dividend policy there are a number of different factors that will have an impact upon: the amount and if one will be paid to shareholders. The most notable include: the growth rate of the company, credit agreements, earnings stability, maintaining control over the float, uncertainty, the ability
THE RELEVANCE OF PAYOUT POLICIES The Relevance of Payout PoliciesIs dividend policy irrelevant?The dividend irrelevancy theory advanced by Modigliani and Miller argues that dividend pay-out has no effect on firm value and hence, dividend policy is irrelevant (Amidu, 2007). The theory argues that excess cash inflows could instead be reinvested into the company to stimulate future growth. Proponents of dividend pay outs argue that dividend-payment creates an impression of honesty
Stock Valuation The stock that I chose is PepsiCo. I was drinking a Pepsi when I was thinking about a stock to do, and it just seemed like a good idea. That is why I picked the stock, but PepsiCo (PEP on the NYSE) is a major blue chip stock so there is no reason why I shouldn't pick it. The current stock price of PepsiCo is $85.31 PepsiCo is in the
Corporate Finance UnitedHealth Group Stock This report will provide insight into the UnitedHealth Group Stock from an investor's perspective. The report will show a financial analysis included with an overview of the company's current health standing. The paper will also provide a summary of the company and their products and services. The key to any intelligent investing strategy lies in the investor knowing what a stock is really worth and also if
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now