What's the point of a stock dividend?
It seems to me that a stock dividend is like a stock split, both of which might help boost liquidity and lower share prices if that is a concern. However, the economic impact of a cash dividend vs a stock dividend seem to be polar opposites. In one, the company is losing cash. In the other, effectively nothing is happening. Am I missing something here? If a company ever pays out a stock dividend in lieu of a cash dividend, wouldn't investors be equally well off having the company not issue a dividend at all? Thanks.
According to economic theory, there is essentially no difference between a stock dividend and a cash dividend (I don't know how applicable this "academic" perspective is to real world functioning).
The reasoning is as follows: The rational investor can essentially undo whatever the company issues. If the company issues a cash dividend, the investor can use the cash to buy more shares. If the company issues a stock dividend, the cash that would've been issued is rejuvenated back into the company's retained earnings, boosting the value of the company, but retaining the same value per share. The investor can sell off the shares for cash.
This is what I learned in grad school... not sure if it's true in the real world.
The point of a stock dividend is to benefit the shareholder. It keeps the shareholder ratio the same unlike an SEO. What typically happens with a stock dividend is that cash dividends stay the same, so you are receiving more money than before when a company pays a dividend (because you have been issued additional shares). To answer your question: Usually shareholders are better off because they are going to be receiving more cash dividends than before. If the cash dividend is diluted then they are not really better off.
A cash dividend gives you cash now, allowing you the option to invest elsewhere. A stock dividend forces you to sell, incurring transaction costs.
Actually, it's not really an effective measure of risk control to own shares ibn your firm as an investment banker. If your bank does well, you will get paid more anyway, but if your bank suffers, not only your earnings diminish, but also the value of stocks you have received will drop. So, an average yield of yours will likely stay the same (in the long run), but with significantly higher standart deviation of the yield.
With 2016 starting with a bang for commodities and some stocks, the year seems to get only better with time for stock market.Getting some inspiration from a successful billionaire investor can be a good start, but ultimately, finding the best dividend stocks to invest in is up to you and, if applicable, your broker. With the likes of George Soros and Carl Icahn making loads of money form dividend stock we can look at the top 5 dividend stocks which can create a buzz in the market and will help in creating a greater ROI for the investors.The surprise being the inclusion of Wells Fargo & Company and the Coca Cola Company, and to add to this there is a surprise entry at the top position "IBM".
Stock dividends with no cash option are treated as unrealized capital gains, so you keep the extra 15-20% plus fees it would cost you to reinvest the cash dividend elsewhere. Given that the growth of principal is an exponential function, an additional 20% is pretty significant over any period of compounded growth.
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