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“Distributions to Shareholders and Capital Structure Decisions” Please respond to the following:
* From the e-Activity, contrast the differences between a stock dividend and a stock split. Imagine that you are a stockholder in a company. Determine whether you would prefer to see the company that you researched declare a 100% stock dividend or declare a 2-for-1 split. Provide support for your answer with one (1) real-world example of your preference.
* From the scenario, examine the dividend rate that TFC is paying in order to determine if the company should receive a rate adjustment. Suggest whether TFC’s dividends should either (1) stay the same; (2) be increased; (3) or go down. Provide a rationale for your response.
The actual difference is due to accounting effect .
In Case of Split
In the case of a split, company divides its existing shares into multiple shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same
In Case of Stock Dividend
In the case of a stock dividend, there must be a transfer from retained earnings to capital stock.
For most firms, a100% stock dividend and a 2-for-1 split accomplish exactly the same thing; hence, investors may choose either one (Brigham & Gerhardt 2014).When stock splits occur the share price will go down accordingly with the hope that additional investors will now have the funds to acquire an interest in the company. When stock price is too high it won’t attract certain investors. I have no preference in the company I researched declaring a 100% stock dividend or a 2-for-1 split because they are accomplishing the same thing for the company
Question
From the scenario, examine the dividend rate that TFC is paying in order to determine if the company should receive a rate adjustment. Suggest whether TFC’s dividends should either (1) stay the same; (2) be increased; (3) or go down. Provide a rationale for your response.
Answer:
At this present time ,The rate of TFC’s cash dividends are of $10 per share for their stockholders. And at present TFC are a company looking to expand, they are going to want to keep hold of any money, TFC currently have to invest it in their expansion plans; hence, the need of a stock dividend. Thus, we suggest that TFC’s dividends should stay the same until after the completion of the expansion project. However, the other possibility that TFC may decide to increase its dividend pay-out to attract further equity investment by offering more attractive dividend returns to investors; which, in turn, may offer them short-term and long-term opportunities, such as the maintenance of stock.
