Stock Dividends and Stock Split
The consequences of the stock dividend and stock split are the increased number of shares outstanding. However, since there is no added value (economically), then the share price per-sheet becomes smaller. The total effect of stock dividends and stock split does not exist, in other words, the total value of the company (stock) will be the same.
The conduct of the reasons Stock Dividends and Stock Splits
- Companies want to hold cash, but also want to pay dividends. Resolution is to pay stock dividends or stock splits.
- The company wants to acquire trading range that is considered ideal.
- Companies want to give signals to the market. Empirical discovery indicates that the price will react positively when the stock split was announced.
Reverse Split
Reverse stock split is the inverse of the spit (stock split). In a reverse split, a few shares of stock are united into one.
In the real world, a reverse split can be done for several reasons. First, a stock whose value is too small is often regarded as a stock that is not good or not ‘respectable’. Investors consider the company has poor prospects, and tend to rate low (underestimate). For that price the stock is increased to approach the ideal range. Secondly, if the stock price increases, transaction costs are expected to be smaller (the inverse of the empirical effects of stock split invention). Smaller transaction costs are expected to encourage the liquidity of shares.
Dividend and Stock Repurchases
Stock split
The action taken by a company to increase the number of shares outstanding.
Dividend Stocks
Dividends paid in the form of additional shares rather than cash.
Effect on Stock Price
- The stock price will rise
- Increase the company’s stock price signals due to the prospect of profits and dividends
- The share price will fall if not announced an increase in profits and dividends
Stock Repurchases
Alternative to the payment of cash dividends, the company may purchase the shares back. Purchase of shares outstanding can be done through the secondary market Stock Exchange. Shares purchased are included in treasury stock account. Theoretically, the value of the company before and after the purchase of shares will be the same again.
The Influencing Dividend Policy Factors
Liquidity position of the Company, since dividends are a “cash outflow” the more powerful the company’s liquidity position means the greater the ability to pay dividends. By itself the company’s liquidity is determined by decisions in the field of investment and how to meet the needs of its funds. It can be said that if the company’s liquidity position is getting stronger against the prospects of future funding requirements, then the “dividend payout ratio” will be higher.
Needs Funds to Pay Debt, if the company determined that repayment of debts will be taken from retained earnings. Means companies reduce dividend payments. In other words, the company set a dividend payout ratio is low.
Company growth rate, the faster growth of the company means that the higher the funds to finance the growth of the company. In these situations companies usually prefer to resist the earnings rather than paid out as dividends, this means that the lower the “dividend payout ratio” her. If the company has been able to meet the needs of capital market funding sources or the other then the company can set a “high dividend payout ratio”.
Monitoring against the Company, relying on internal spending in order to attempt to maintain control of the company, this means reducing the “dividend payout ratio”.