Types of Dividend Distributions

A stock dividend is the dissemination of extra shares to investors.

Stock dividends are by and large expressed as a percentage of existing share holdings. On the off chance that a company pays a stock dividend, it isn’t exchanging anything of value to the investors. The assets of the business continue as before and every investor’s proportional share of entitlement continues as before. All the business is doing is cutting its value “pie” into more portions and in the meantime cutting every investor’s part of that value into more portions.

So why pay a stock dividend?

A stock split is something like a stock dividend. A stock split breaks the quantity of existing shares into more shares. For instance, in a 2:1 split—alluded to as “two for one”— every investor gets two shares for each one possessed. On the off chance that a financial investor claims 1,000 shares and the stock is part 2:1, the investor at that point possesses 2,000 shares after the split. The investor presently possesses twice the same number of shares —thus does each other investor. In the event that the investor claimed 1% of the company’s stock before the split, the investor still possesses 1% after the split.

A reverse stock split is like a stock split, yet in reverse: a 1:2 reverse stock split diminishes the quantity of shares with the end goal that an investor gets a half the portion of the quantity of shares held beforehand the reverse stock split.

A stock split in which more shares are circulated to investors is alluded to as a forward stock split to recognize it from a reverse stock split. Like both the stock dividend and the stock split, there is no genuine circulation or commitment made, however basically a partition of the equity pie—for this situation, into less pieces.

Stock distributions, like cash dividends, are a choice of the board of directors, however for this situation the “payment ” date is when the extra shares are given to investors, or shares traded, on account of a forward or a reverse stock split.

By | 2018-08-30T17:54:06+00:00 August 30th, 2018|Analystic, Finance|
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