stock split

Examples of stock split in the following topics:

• Stock Splits

  • A stock split increases the number of shares outstanding without changing the market value of the firm.
  • A stock split or stock divide increases the number of shares in a public company.
  • They would split their stock 2-for-1.
  • After a 3-for-1 stock split the market capitalization of the company remains unchanged at $600,000, but there are not 300,000 shares trading at $2.
  • Berkshire Hathaway has famously never had a stock split, and has never paid a dividend.

• Reverse Splits

  • That is the premise behind a reverse stock split.
  • In a reverse stock split (also called a stock merge), the company issues a smaller number of new shares.
  • In an extreme case, a company whose share price has dropped so low that it is in danger of being delisted from its stock exchange, might use a reverse stock split to increase its share price.
  • For these reasons, a reverse stock split is often an indication that a company is in financial trouble.
  • A reverse stock split may be used to reduce the number of shareholders.

• Stock Dividends

  • 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.
  • A stock split is paid by switching out old shares for a greater number of new shares.
  • Stock dividends may also be paid from non-outstanding stock or from the stock of another company (e.g. its subsidiary).
  • Create a journal entry to record a stock dividend and a stock split

• Common Stock

  • Common stock is a form of ownership and equity, different from preferred stock, that still earns rights of ownership for its shareholders.
  • "Common stock" is used primarily in the United States.
  • If both types of stock exist, common stock holders cannot be paid dividends until all preferred stock dividends (including payments in arrears) are paid in full.
  • Holders of common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors.
  • Stocks can be bought and sold on exchanges, like the New York Stock Exchange shown above.

• Voting Right

  • Common stock generally carries voting rights, while preferred stock does not; however, this will vary from company to company.
  • Common stock can also be referred to as a "voting share. " Common stock usually carries with it the right to vote on business entity matters, such as electing the board of directors, establishing corporate objectives and policy, and stock splits.
  • However, common stock can be broken into voting and non-voting classes.
  • While having superior rights to dividends and assets over common stock, generally preferred stock does not carry voting rights.

• 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.
  • A further benefit of the stock dividend is its perceived flexibility.
  • It has the same effect as a stock split: the total value of the firm is not affected.
  • Assess whether a particular shareholder would prefer stock or cash dividends

• Methods of Paying Dividends

  • Dividends, which are distributed based on how many shares each person owns, can be paid using cash, stock, or other company property.
  • Thus, if a person owns 100 shares and the cash dividend is 50 cents per share, the holder of the stock will be paid 50 dollars.
  • Stock or scrip dividends are those paid out in the form of additional stock shares of the issuing corporation or another corporation, such as its subsidiary corporation.
  • For example, for every 100 shares of stock owned, a 5% stock dividend will yield 5 extra shares.
  • If the payment involves the issue of new shares, it is similar to a stock split: it increases the total number of shares while lowering the price of each share without changing the market capitalization, or total value, of the shares held.

• Dividend Preference

  • If a corporation issues only one class of stock, this stock is common stock.
  • Preferred stock is a class of capital stock that carries certain features or rights not carried by common stock.
  • It is called "common" to distinguish it from preferred stock.
  • If both types of stock exist, common stock holders cannot be paid dividends until all preferred stock dividends (including payments in arrears) are paid in full.
  • Holders of common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors.

• How Corporations Raise Capital

  • A company may choose to issue new "preferred" stock to raise capital.
  • Typically, investment banks help companies issue stock, agreeing to buy any new shares issued at a set price if the public refuses to buy the stock at a certain minimum price.
  • Investors are attracted to stocks in two ways.
  • Companies whose stock prices rise substantially often "split" the shares, paying each holder, say, one additional share for each share held.
  • In a two-for-one split, for instance, the stock's price is initially cut in half, attracting investors.

• Dividend Irrelevance Theory

  • It does not matter if the firm's capital is raised by issuing stock or selling debt, nor does it matter what the firm's dividend policy is.
  • Securities can be split into any parts (i.e., they are divisible).
  • Essentially, firms that pay more dividends offer less stock price appreciation that would benefit stock owners who could choose to profit from selling the stock.
  • If dividends are too small, a stockholder can simply choose to sell some portion of his stock.