As a stockholder, which would I prefer a 100% stock dividend or a 2-for-1 split?

Answer 1

A stock split does not generate a taxable event. A stock dividend does.

What happens in a 2/1 stock split is that you now get 2 shares and the cost basis of each share is also split 2/1. For example, if you paid $10 for the original share and its now worth $20 and then it experienced a 2 for 1 stock split then you have 2 shares each with cost basis $5 per share with each being valued at $10 post split. So you retrain your unrealized capital gain of $10. Each share will then appreciate or depreciate depending on future market conditions, corporate events etc.

What happens in a 100% stock dividend is that you get 2 shares of the stock, EXCEPT the original share continues to retain its cost basis of $10 and the new share has a cost basis of $10. So the original share will now have no capital gains but the "100% dividend share" will convert your current capital gain into dividend income. Therefore, for tax purposes you have received a dividend worth $10 and it is immediately taxable. Tax rates on dividends will depend on whether the dividend is qualified or not. Non-qualified dividends (i.e. if the original stock was held for less than 62 days) are taxed as ordinary income; qualified dividends may be taxed at 15% if held for more than 62 days or 5% if held for more than 5 years. So you will experience an out of pocket tax expense as a result of the stock dividend without the stock generating any cash to pay for it unless you sell the stock you received as the "stock dividend". You obviously do not have to sell any shares unless you want to but you will have to pay the taxes owed from other sources.

That is the long and short of it. Bottom line is that most investors prefer stock splits rather than stock dividends.

Good luck.

Answer 2

You would prefer a 100% dividend.
To understand why, you must first understand what both of these really are, how they work, and what they mean.

1. Dividend - a dividend is pretty straightforward. The company is (theoretically) doing well enough to pay its stockholders back. Traditionally, people purchased stock for these dividends. Now, dividends have gone by the wayside. Many people do not buy stocks for the dividends, instead they buy them for their capital gain potential. Anyway, when a company pays a dividend, they first anounce the dividend, then on a later date, they pay the dividend. As such, the price of a stock will usually increase between the date of the anouncement and the date of the dividend by an amount less than that of the dividend. On the ex-dividend date (the date you have to hold the stock before to be paid the dividend), the stock price usually falls a certain percentage of the dividend, but rarely the whole amount. Let's use an example. You have a stock worth $50. They anounce a dividend of $5 on July 1. The ex-dividend date is July 15. Between July 1 and July 14, the stock goes up to $53. On July 15, the stock falls to $49. You the stock holder have lost $1 in capital price and gained $5 in cash. Usually, the price will increase to over $50 before the next dividend is issued (though not always, due to volatility, bad and irrational decisions, etc.)

2. Stock splits. In a stock split, you do not just get double the stock at the same price. What happens is that the company states the date of the split, similar to a dividend. Again, let's say the anouncement is on July 1, and again July 15th is the ex-split date. In this case, there is usually some increase in trading price, but not something significant. If the price was at $50 on July 1, it would probably go up to ~$52 by July 14 (barring volatiility or trends in the price otherwise present). When the stock splits, then the price it is traded at usually goes down to almost exactly half of the price it closed on the the 14th. So, now you have twice as much stock at ~$26/share. In total, you have recieved ~$2/share gain.

As you can see, if the dividend was unrealisticly high, at 100% of current value, then you would likely not end up with 100% of value in dividend and also the same price in trading afterwards, but it is possible. The insanely large dividend is much better than a 2-1 stock split. This should also be intuitively obvious because a 100% dividend pretty much never happens, whereas a 2-1 stock split happens regularly.

Answer 3

The 2-1 split. Here is why. A stock that is worth $50 that is split 2 for 1 will give you 2 $25 stocks. That's still worth $50. Generally stocks go down as the worth goes down nearly the percent of the stock. A $50 with a 4% dividend is expected to drop to $48. A stock with a 100% dividend could drop to zero. Outside Roth you will be paid for taxes on the dividend and that tax can be 15%+. Now you will have $42.50 or less in cash per share after taxes. The stocks themselves would probably be nearly worthless.

Answer 4

I would take the 2 for 1 split, as I did with my Apple shares. After the 2 for 1 split, it appreciated back to its value before the split. Basically I took the 2 for 1 split and received 100% appreciation.

Answer 5

Never thought about it but since stock dividends aren't taxed like cash dividends I don't think there would be any material difference between the two.

Answer 6

2 for 1 split, a dividend is taxable.