Unit 4 - Investing

posted by .

Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you? Explain.

Explain a stock dividend and further explain if you would perfer it to a cash dividend.

What are stock splits and how desirable are they?

Please help me understand. candy :(


If a company repurchases shares from its cash reserves, the number of shares outstanding decreases and, in principle at least, each remaining shareholder has a greater share of the company. It has been my experience that this does not result in a noticeable near-term increase in share value, however. This may be because, in many cases, the purchased stares are salted away to be used for stock options for highly paid managers. I would prefer the cash in the hand as a cash dividend. Companies that issue special cash dividends, when they have more cash then they can use to good advantage, are usually the ones that have the wellfare of stockholders uppermost in their mind.

Stock dividends iare an issuance of small amounts of stock, such as one share for each ten shares already owned, instead of a cash dividend. The recipient ends up with more shares of a company in which each share has been diluted by the issuance of news stock. You also have to pay some broker a commision oin order to get thecash. Don't be fooled by this gimmick. Avoid companies that do it.

Stock splits are a bit like stock dividends but usually can be considered more meaningful and beneficial for psychological reasons. Typically, you are given two shares in place of the one you already own, or three for two, or three for one. This reduces the price of the stock in the same ratio, so the immediate result is that you have gained nothing. However, it tends to induce, or seduce, more buyers to purchase the stock at the new "lower price per share" and this usually helps the stock increase in value in the long run. The bottom line is that stock splits are a bookkeeping device to make the shareholders feel good by holding more shares, but it does not increase their stake in the company. It is, however, a signal to other investors that the stock is doing well.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Investing

    Cliff Swatner is single, 33 and owns a condominium in New York City worth $250,000. Cliff is an attorney and doing well financially. His income last year exceeded $90,000, and has sufficient liquid assets to supplement his condominium …
  2. Personal Finance

    Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you?
  3. record declaration and payment of cash dividend

    How are entries recorded for the declaration and payment of cash dividends. A Corportation has 50,000 shares of common stock outstanding. It declares a $2 per share cash d ividend on November 1 to stockholders of record on d=december …
  4. personal finance

    Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you?
  5. finance

    Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you?
  6. 2 Part of accounting

    2 part of Accounting Homework Mar. 5 Declared a $.40 per share cash dividend to be paid on April 6 to stockholders of record on March 20. Mar 20 Date of record Apri. 6 Paid the cash dividend June 17 Declared a 10% stock dividend to …
  7. investing

    (Dividend discount Model) Assume RHM is expected to pay a total cash dividend of $56.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market …
  8. Accounting

    Greenwood Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last 6 months have been a real cash drain on the company, however, as profit margins have been greatly narrowed by increasing competition. With …
  9. accounting

    Pearson began 20XX with 30,000 $1 common shares issued and outstanding. Paid in capital in excess of par was $25,000 and retained earnings were $75,000. Net income for 20XXwas $22,000. Requirements: Review Pearson's transactions for …
  10. mathematics

    Oaktree Transportation Corporation has 75,000 shares of stock outstanding. What would the dividend per share of stock be from a dividend declaration of $102,750?

More Similar Questions