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Stock Dividend Vs. Stock Split Essay
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A stock dividend is when the company uses the money that would ordinarily go to pay shareholder dividends but instead uses it to buy additional shares for the shareholder. The stock split occurs when the company issues new shares (2 or more) for every existing share held by investors. The former action decreases the overall float in the marketplace, which means the share price is likely to be driven up—good for investors if they want to sell. The latter is dilutive and increases the float by doubling the number of shares available for purchase.
It really depends on the company. For instance, Apple split its stock 7:1 in 2014, which drove the price down significantly and made it more attractive for retail buyers (Stock Split, 2019). Because many retail buyers view Apple as at the forefront of the tech industry, they were willing to buy. Apple, too, has been conducting share buybacks worth billions of dollars, thereby reducing its float after the split and driving the share price back up and increasing the overall value of the stock.
Thus, if it is a company like Apple, I will gladly take the stock split because I know that company is authorizing billions in share buybacks each year, which means all those new shares I was awarded as a result of the split will increase in value. Also, with the Federal Reserve launching a new de facto round of quantitative easing it appears that the equities market is being propelled to new heights. Therefore, a stock split coming from a company like Apple will reward investors handsomely over time. But coming from a company that is drowning in debt and is only splitting the stock with the intention of satisfying debt holders, the shares are likely to decrease in value as the company’s shares are shorted on the open market. For that reason, it really depends on the company and the company’s overall objective.
References
Stock Split. (2019). Retrieved from https://www.stocksplithistory.com/apple/
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