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17 September, 18:09

17. What is the difference between a stock dividend and a stock split? As a stockholder, would you prefer to see your company declare a 100% stock dividend or a two for one stock split? Assume that either action is feasible and explain your reasoning.

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Answers (2)
  1. 17 September, 18:41
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    A stock dividend is a dividend paid to shareholders in the form of additional shares in the company, rather than as cash while a stock split is a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares.

    Explanation:

    A stock dividend occurs when the company uses the amount of money that would be paid as a cash to shareholders in the to give them additional shares in the company.

    Stock dividends are not taxed until they are sold.

    In a 2-for-1 stock split, an additional share is given for each share held by a shareholder. So, if my company had one million shares outstanding before the split, it will have two million shares outstanding after a 2-for-1 split and the resultant effect will affect the stock price stock's price.

    I will prefer a two for one stock split divides to boost the liquidity of my company shares which means that the stockholders will have two shares for every share held earlier.
  2. 17 September, 20:44
    0
    Answer: The answers are provided below.

    Explanation:

    A stock dividend occurs when the firm uses the money that was meant to be paid to the shareholders as cash dividend to buy additional common shares for them. A stock split occurs when a firm gives two or more new shares to every existing share that an investor holds.

    As an investor, I'll consider whether the aim of the company in making a stock split or issuing a stock dividend aligns with my aim of investing in the company. In a case where the aims doesn't align with mine, I'll go and invest in another firm.

    A company declaring 100% dividend shows growth and also, as a stakeholder, tax may not be paid by me. Stock split gives room for small investors to invest and it also reduces share price.
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