Differences between a stock dividend and a stock split.
Contrast the differences between a stock dividend and a stock split.
Imagine that you are a stockholder in a company. Determine whether you would prefer to see the company that you researched declare a 100% stock dividend or declare a two-for-one split. Provide support for your answer with one real-world example of your preference.
From Proffesor:
For this question the main difference between stock dividend and stock split is that a dividend is normally a percentage to purchase more common shares for stakeholders whereas a stock split is two or more new shares for every existing share an investor holds. The shareholder does not pay any additional money. Dividends are also mostly done annually but many companies do not do them because small dividends create more paperwork, expenses, and bookkeeping problems. I would prefer stock split over dividend as it would make more shares and more affordable for those that want more as well as those that might now have been able to afford it otherwise. For example, Microsoft’s stock was almost $175 per share currently. If split I would have 2 shares and they would both value $87.50 meaning I have not lost anything. I can buy more and others that are not willing to spend over $100 per share can now invest as well. In the long run I will gain more money from a split. There are many other companies that each share cost way more for example Tesla. Currently Tesla’s stock price was almost $800 per share. Would you be more willing to buy stock in Tesla if it were to split? Or would you buy at its current price and hope for dividends at the end of the year? The following article provides a little more on stock split and stock dividends.
Sample Solution
Cash dividend means dividend which is paid to shareholders in cash/bank. When a company doesn’t have cash for payment of dividends, it gives dividends in the form of equity or we say that additional shares of the company are allotted to the shareholder. This term is called stock dividend. Stock split is one of the forms of corporate action. A stock dividend means dividend which is paid in the form of additional shares whereas stock split is a division of issues shares in the ratio as decided by company. In the stock dividend, additional shares are given to shareholders whereas in stock split already issued shares are split in an agreed ratio.
