Question

2 Stock splits versus stock dividends Assume that you own 1,200 shares of common stock of a company, that you have been receiving cash dividends of $2.75 per share per year, and that the company has a 3-for-2 stock split. Required: a) How many shares of common stock will you own after the stock split? b) What new cash dividend per share amount will result in the same total dividend income as you received before the stock split? c) What stock dividend percentage could have accomplished the same end result as the 3- for-2 stock split?

Answer 1

3 for stock split means that 3 shares will be issued in place of every 2 held

a)Number of shares after split = 1200*3/2 = 1800 shares

b)Per share dividend required = 2.75*1200/1800 = $1.8333 per share

c)Stock is issued a dividend under stock dividend

Stock dividend % = 50%