If a corporation has a limited amount of liquid cash, it may choose to pay out a
Question:
If a corporation has a limited amount of liquid cash, it may choose to pay out a stock dividend. If the company is striving to maintain its current cash supply, it may opt to offer a stock dividend instead. While increasing the overall supply of stock by the payment of a stock dividend reduces the value of the existing shares, this might be beneficial to owners if the stock price rises. However, unlike cash dividends, stock dividends are not taxed until they are sold, unlike cash dividends."
ABC individual invests only in Blue Chip companies listed on the NYSE and Nasdaq. ABC is a high net worth individual located in a no state tax state, Florida. This individual is over 67. Recently, DFG investment declared a stock dividend. Normally DFG pays a massive 3% cash dividend to investors. The stock dividend will increase stock by 7%. What are your thoughts on this?
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta