From the e-Activity, contrast the differences between a stock dividend and a stock split. Imagine that you are a stockholder in a company. Determine whether you would prefer to see the company that you researched declare a 100% stock dividend or declare a 2-for-1 split. Provide support for your answer with one (1) real-world example of your preference.
The difference is largely one of accounting. In the case of a split, the firm simply increases the number of shares and simultaneously reduces the par or stated value per share. In the case of a stock dividend, there must be a transfer from retained earnings to capital stock. For most firms, a 100% stock dividend and a 2-for-1 split accomplish exactly the same thing; hence, investors may choose either one (Brigham & Ehrhardt 2014). When stock splits occur the share price will go down accordingly with the hope that additional investors will now have the funds to acquire an interest in the company. When stock price is too high it won't attract certain investors. I have no preference in the company I researched declaring a 100% stock dividend or a 2-for-1 split because they are accomplishing the same thing for the company. Since I'm asked to choose I would choose a 2-for-1 split.
On May 20 2009, the Macy's, Inc. board of directors approved a 2-for-1 split of Macy's, Inc. common stock. The split is structured in the form of a 100% stock dividend that was payable June 25, 2009 to shareholders of record on May 20, 2009. As a result of the stock split, each shareholder would receive one additional share of common stock for each share of common stock owned as of the close of business on the record date. A 100% stock dividend is a common way to implement a two-for-one stock split. On the payment date, June 25, 2009, each stockholder received one additional share of stock for each share owned as of the close of business on the record date, May 20, 2009.
If an investor owns 100 shares of FD as of the record date and the market price is $74.00/share, that investor's total value is $7,400.00. After the split, the investor will have a total of 200 shares of stock, but the market price will be $37.00/share. The investor's total investment value in FD remains the same at $7,400.00 until the stock price moves up or down.