stock dividend

Examples of stock dividend in the following topics:

• Stock Dividends

  • Stock dividends are when a company gives each shareholder additional stock in lieu of a cash dividend.
  • A stock dividend (also known as a scrip dividend) can be the economic equivalent of a stock split.
  • The stock dividend is not, however, exactly the same as a stock split.
  • Cash dividends are taxed, while stock dividends are not .
  • Create a journal entry to record a stock dividend and a stock split

• Stock Dividends vs. Cash Dividends

  • Stock or scrip dividends are those paid out in the form of additional stock shares of either the issuing corporation or another corporation.Cash dividends provide investors with a regular stream of income.
  • Costs of taxes can also play a role in choosing between cash or stock dividends.
  • Cash dividends are immediately taxable under most countries' tax codes as income, while stock dividends are not taxable until sold for capital gains (if stock was the only choice for receiving dividends).
  • A further benefit of the stock dividend is its perceived flexibility.
  • Assess whether a particular shareholder would prefer stock or cash dividends

• Accounting for Preferred Stock

  • Usually, stockholders receive dividends on preferred stock quarterly.
  • Noncumulative preferred stock is preferred stock in which a dividend expires whenever the dividend is not declared.
  • Cumulative preferred stock is preferred stock for which the right to receive a basic dividend, usually each quarter, accumulates if the dividend is not paid.
  • Companies must pay unpaid cumulative preferred dividends before paying any dividends on the common stock.
  • Stock may be preferred as to assets, dividends, or both.

• Value of a High Dividend

  • A high dividend yield indicates undervaluation of the stock because the stock's dividend is high relative to the stock price.
  • High-yield stocks tend to outperform low yield and no yield stocks during bear markets because many investors consider dividend paying stocks to be less risky.
  • In this case, a falling stock price indicates investor fears of a dividend cut.
  • Therefore, some individuals are better off holding high dividend stock.
  • Discuss the advantages of owning stock that has a high dividend

• Defining Dividends

  • When it is time to make dividend payments, corporations always pay preferred stock owners first, and then common stock dividends are allocated after all preferred dividends are paid in full.
  • In-dividend date is the last day, which is one trading day before the ex-dividend date, where the stock is said to be cum dividend ('with [including] dividend').
  • In other words, existing holders of the stock and anyone who buys it on this day will receive the dividend, whereas any holders selling the stock lose their right to the dividend.
  • After this date the stock becomes ex-dividend.
  • Existing holders of the stock will receive the dividend even if they now sell the stock, whereas anyone who now buys the stock will not receive the dividend.

• Provisions of Preferred Stock

  • Preferred stock shareholders already have rights to dividends before common stock shareholders, but cumulative preferred shares contain the provision that should a company fail to pay out dividends at any time at the stated rate, then the issuer will have to make up for it as time goes on.
  • Convertible preferred stock can be exchanged for a predetermined number of company common stock shares.
  • There is a class of preferred shares known as "participating preferred stock. " These preferred issues offer holders the opportunity to receive extra dividends if the company achieves predetermined financial goals.
  • Investors who purchased these stocks receive their regular dividend regardless of company performance (assuming the company does well enough to make its annual dividend payments).
  • Dividends are one of the privileges of stock ownership, and preferred shares get more rights to them than common shares do.

• The Cost of Preferred Stock

  • The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the expected growth rate.
  • This is different than common stock, which has variable dividends that are never guaranteed.
  • If preferred dividend is known and fixed, we can use the following equation to calculate the cost of capital for preferred stock .
  • This tells us that the cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the expected growth rate.
  • The cost of preferred stock is equal to the preferred dividend divided by the preferred stock price, plus the growth rate.

• Preferred Stock Rules and Rights

  • Preferred stock can include rights such as preemption, convertibility, callability, and dividend and liquidation preference.
  • Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation.
  • The following features are usually associated with preferred stock: Preference in dividends preference in assets, in the event of liquidation, convertibility to common stock, callability, and at the option of the corporation.
  • This claim is senior to that of common stock, which has only a residual claim.Almost all preferred shares have a negotiated, fixed-dividend amount.
  • Preferred stock may also have rights to cumulative dividends.

• Dividend Yield Ratio

  • Unlike preferred stock, there is no stipulated dividend for common stock.
  • Instead, dividends paid to holders of common stock are set by management, usually with regard to the company's earnings.
  • U.S. newspaper and Web listings of common stocks apply a somewhat different calculation.
  • A high dividend yield can be considered to be evidence that a stock is under priced or that the company has fallen on hard times and future dividends will not be as high as previous ones.
  • Similarly, a low dividend yield can be considered evidence that the stock is overpriced or that future dividends might be higher.

• Impact of Dividend Policy on Clientele

  • This set of clientele could choose to sell the stock.
  • Clientele may choose to sell their stock if a firm changes its dividend policy, and deviates considerably from its preferences.
  • These changes in demographics related to a stock's ownership due to a change of dividend policy are examples of the "clientele effect. "
  • Therefore, stock value is unaffected.
  • As a result, an investor may stick with a stock that has a sub-optimal dividend policy because the cost of switching investments outweighs the benefit the investor would receive by investing in a stock with a better dividend policy.