what is the impct of stock split and stock dividend?

Answer 1

In theory, a stock split shouldn't have any impact. It's just saying that the value of stocks has gotten so high that it discourages people from buying them, and splitting them makes more available for trading. If a company is worth $100m and has 1m shares, then each is worth $100. If they do a 1:4 split, then after the split there will be 4m shares and each will be worth $25. The total value of the company remains at $100m though.

Stock dividends are when a company makes a profit and the board decides to share some of that profit with the shareholders. Usually, the more shares you have (the more of the company you own) the more of that profit you'll get. Some of the profit may also be put back into the company for growth, rather than paying dividends.

Answer 2

Theoretically speaking, there should not be any impact. But since the theory is based on the assumption of rational investor, it does not work the same way in real life.
It has been observed, that the market capitalisation of a stock post stock split is generally higher than pre split. The reason can be attributed to human psychology that investors can purchase the least unit of the split part of the stock which was earlier beyond their reach. Thus it adds liquidity in the stock.
Stock dividend should not have any impact except for the taxation issue. If the dividend is taxable, then stock should declined more than the amount of dividend post record date of payment of dividend.

Answer 3

As everyone else here has pointed out, a stock split should have no impact on value. In practice, it is sometimes looked at as a positive. Lowering the price makes it more affordable to buy a lot of a stock. Someone who might not be willing to spend $8000 for 100 shares of a company might be willing to spend $4000. By making it cheaper, it makes it more afordable. It also makes it more profitable for market-makers -- as the ratio of the bid-ask spread over the price increases.

As for dividends, we have to look to theory. It is believed that companies can signal their good quality by initiating dividends (See Miller & Rock's landmark paper from the early 1980s). Empirical studies have shown that when a company that has never paid dividends announces that they will start paying dividends there is (on average) an increase in price of about 3%. This increase is permanent. The market punishes companies that lie to them -- there is a larger drop in price when a company suspends dividends.

In my doctoral dissertation, I show that the increase is greater for companies that have no debt. This fits with theory -- because companies with debt have already shown tht they are creditworthy -- so not as much information is being transmitted.

Answer 4

Stock Split: Let's say you have 1 share worth $100 and it splits 2 for 1. You end up with 2 shares worth $100, but usually when there is a split, it starts to increase. (Check out the split for Brown Shoe Co. last spring on Yahoo Finances under the ticker symbol BWS to see what happens).

Dividend: Let's say the Board declares a dividend of $0.08 for every share and you have 1,000 shares. You get $80. Although it may be set up to purchase more shares.

Answer 5

The split normal doesn't affect you at all.

A dividend will affect your tax situation. You will have to pay taxes on the dividend. For most people this isn't a big deal but for larger investors it is.

Stable companies with no real growth prospects often pay large dividends. All lot of companies pay like a token dividend of like 1%.

Answer 6

As far as the investor is concerned all it does is add to the number of shares you own with a corresponding drop in the price per share of the particular security. There is no financial impact overall. There may be an impact however when you go to sell your shares if your broker has a per share commission rate.

As for the stock in question, the number of shares outstanding is increased and the individual share becomes lower priced. The trading volume of the security increases and the overall brokerage commission increase.