Submitted by: Submitted by tasheeepoo
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Category: Business and Industry
Date Submitted: 04/26/2009 10:31 PM
Stock Dividends, Splits and Reverse Splits
Tasha Brown
Axia College of University of Phoenix
When a company decides to become publicly owned they issue what is called stocks or shares that are available for purchase by the public. These stocks are given a price and then traded and purchased too many times to count. Sometimes the company must do things to make these stocks more accessible and affordable to investors. Three things a company can do issue are stock dividends, stock splits and reverse stock splits. All of these are done for different reasons with different outcomes; however all are done for the well being of the company and current and potential stockholders.
When a company issues a stock dividend it basically issues additional shares of its’ stock to existing shareholders in proportion of their current ownership. The dividend is made in additional shares instead of the traditional cash dividend payments. The stock dividend is usually expressed as a percentage of the number of shares of outstanding stock. If a company has 1,000,000 shares of stock and issues 15 percent stock dividend, the number of shares would increase to 1,150,000. The value of total stocks does not change at all.
To a stockholder, the stock dividends represent nothing of value. It is true that they are receiving more shares, but the total value of the stocks stays the same. The stock price decreases in proportion with the percent of the dividend. The stock dividend does not make much of a difference to the company either. It does not affect their assets of liabilities either by an increase or a decrease. With this information you might wonder why a company would issue a stock dividend.
There are many reasons a company might issue a stock dividend. One would be simply to increase the number of shares outstanding in the company. It also allows the company to move some of its retained earnings into paid in capital. The company might have inadequate cash on hand so...