Question

Hi I need help with this question please.

If you were an individual, would you prefer to receive cash dividends, stock dividends, or stock split? Describe why and the benefits to support your decision.

Answer 1

Given case I choose stock split.

Explanation for the above given statement :-

1. Install split we get multiple number of shares by having only minimum number of shares.

This means if the company announces stock split of 1:2

Then if we have 10 shares after the stock split number of shares in our hand will become 20.

By the stock split we can double the value of the investment in our hands.

but in some exceptional cases the value of each share will drop down after the announcement of stock split

Even then dropdown of price of share also the shareholder who is eligible for getting that stock split will get benefited by this stock split.

And I choose in stock split rather than cash dividend and stock dividend means in cash dividend we make get 10% to 15% of amount invested in shares and in stock dividend the organisation may give benefit by issuing right shares in that case also we need to invest some of the amount from our own hands.

But in case of stock split we nearly get 70% to 80% off capital appreciation in the form of increase in number of shares.

Which can be clearly understand by using an example.

I hold 20 shares of X limited which has a market value of $100 per each share.

Then X Ltd announces stock split of 1:2

Then the number of shares in my portfolio will be come 40 shares.

Due to some external circumstances or by the effect of stock split we estimated drop in value of shares by 20%

Then the market value of each share will become

= $100 - 20%

= $80

Total value of our holdings in X limited will be

= 40 shares × $80

= $3200

In the given example initially the value of investment is $2000.

But after stock split the value of investment became $3200

By this we got the return of 60% ((1200 ÷ 2000)×100).

The 60% of return we cannot get in cash dividend or stock dividend.

Due to this reason I chosen stock split.

These are all the information required to solve the above given question.

I hope, all the above given explanations, example and calculations are useful and helpful to you.

Thank you.