Question

Is a cash dividend preferable to a stock dividend?

why would a company split its stock?

how important is a firms dividend payout policy?

do you think that a firms dividend payout policy affects the value of the firm?

what are the advantages of owning a firm that pays dividends as opposed to a firm that doesn't pay dividends.

Answer 1

When comparison cash dividends or stock dividends . Stock dividends is preferred, because sock dividend gives stockholders new stocks and also helps them avoid taxes.

A company splits in shares in multiple shares , so that the price of the stocks falls within a range so that investors become comfortable into buying this stock and also increase liquidity. A stock split is done  primarily by companies that have seen their share prices increase substantially and although the number of outstanding shares increases and price per share decreases, the market capitalisation of the company does not change.

A firm's dividend payout policy is very important as one of the most important decision that the board of directors make is deciding on how much dividend to pay to shareholders. Investors prefer stocks that regularly pay dividends. Some evidence suggests that investors are not concerned with a company's dividend policy since they can sell a portion of their portfolio of equities if they want cash. Generally firms that have growth potential and are in need of cash do not any dividends whereas mature firms pay them.

Yes paying dividends affect firm value. high dividends will increase firm value. As investors prefer stocks that pay dividends to maintain their steady flow of cash.

Advantages of owning a firm that pays dividends :

• Dividends are less volatile than earnings over time.
• The dividend paying stocks can keep pace with inflation.
• As prices rise, profits also tend to rise, and companies can afford to raise their dividend payments.
• Dividend stock investing is a great source of passive income.