Question

Which of the following statement is correct regarding dividends?

A) A stock split always increases the firm’s number of shares outstanding.

B) All else equal, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend on the record date.

C) By paying the same dollar amount of dividend per share each quarter, the firm will always have the same dividend yield each quarter.

D) For a 3:2 stock split, the stock dividend is 50%.

E) In a perfect capital market, the cum-dividend price should be equal to the ex-dividend price.

Answer 1

Option A is correct

Stock split increases the number of shares outstanding

==>market value of the stock decreases on the ex-dividend date not on the recorrd date

==> Dividend yield=dividend per share/Market share price. Dividend yield is not just depends on the dividends paid but also on the market share price

==>3:2 stock split means three shares for every two shares you own.

==> No, Cum-dividend price will adjust to ex-dividend price on ex dividend date. It is not correct that both should be equal