Every corporation has the same goal in mind—to maximize shareholder wealth. This goal is fulfilled in either of two ways, by reinvesting cash into the business to stimulate its growth or by paying dividends to shareholders. A dividend can take the form of ei𒆙ther cash or stock.

In the case of a 澳洲幸运5开奖号码历史查询:cash dividend, shareholders receive a payment in cash that is based🍎 on the number of shares they own. Let's say a corporation declares a cash dividend of $0.25 per share. If an investor owns 10,000 shares, the investor would receive $2,500 as a cash dividend.

On the other hand, if the company declares a 澳洲幸运5开奖号码历史查询:stock dividend of 0.2, the shareholder's payment comes in the form of stock shares. In this case, for every share owned, 0.2 of a share (called a 澳洲幸运5开奖号码历史查询:fractional share) is awaওrded to the sha🍰reholder. Thus, the investor with 10,000 shares would own a total of 12,000 shares (10,000 x 1.2) after collecting the dividend.

The ef🌜fect of this stock divideꦐnd on the stock price, however, is not as positive, at least immediately.

Cash Dividend Vs. Stock Dividend

The stock dividend increases the number of shares outstanding, just as a 澳洲幸运5开奖号码历史查询:stock split does. With aওll other things remaining the same, the stock price will fall.

Therefore, a stock dividend and a stock split both dilute the stock's price.

Stock prices are based on the value of the firm divided by the number of shares outstanding. For example, say a firm has a 澳洲幸运5开奖号码历史查询:market cap of $750 million, and there are 200 million shares outstanding at the stock price of $3.75 ($750/200). If there is a stock dividend declared of 0.2, the number of shares 🐟outstanding will increase by 20% to 240 million.

With this new number of shares outstanding, the company's market cap remains the same, but the 澳洲幸运5开奖号码历史查询:share price will decrease to $3.13 ($750/240).

What Happens When a Stock Splits

The result would be the same if the firm decided to split the stock 6:5,🦋 which means that for every five shares currently owned, the shareholders will own a total of s🔯ix shares of stock after the split.

The number of shares outstanding would increase to 240 million (200 x 1.2)🐼, and ✱the market price would be diluted to $3.13.

One positive characteristic of the stock dividend 𒉰and stock split is that ownership is not further diluted. That is to say, all ඣshareholders will own the same proportionate amount of the company after the dividend or the split as they did before.

It should be noted that this dilution is the immediate effect of a stock dividend. The p💟ayment is intended as a reward to shareholders and is made with the assumption that the stock price will continue to rise and the stockholders will reap the rewards.