Question

I'm looking at the below webpage. The question states "On 01/30/12, prior to...., Rice declared a 100% stock dividend on c/s".

I see mathematically what happens but I don't understand why. How come two years of COMMON stock dividends are issued not just one year? It isn't cumulative preferred stock.

There's something about issuing common stock dividends I must not understand. Could you please connect the dots?

https://www.chegg.com/homework-help/questions-and-answers/december-31-2010-rice-company-300-000-shares-common-stock-10-000-shares-5-100-par-value-cu-q1083710.

Thank you, Natalie

Answer 1

Solution:

100 percent dividend means you that you will get 1 share of the “Stock Dividend” for every share you own. That is for every share you earn you will get another share as dividend. There are instances where the company gave 1 share for every share the shareholder owned. In 2014 Google gave all the Class A shareholder, equivalent number of Class C shares to their stock holding. In reality Net Asset Value of the Class A shareholders has not increased by 100%. To Increase the Net Asset Value per unit by 100% the Class A Shareholders should receive 2 Class C shares for each of their Stock holding (or per unit).

When a company says it has declared 100% dividend it implies to say the 100% is on the Face Value of the Share. As per law if company mentions 100% dividend declared, it should also mention the rate of dividend per unit of the Common Stock. 100% dividend declared on the Face Value of the share is considered as one of the silly concepts. It is considered as silly concept because it does not increase the Net Asset Value of the share holder by 100%. Purchase price per unit of share @ $100 market price and the face value is $10. Then the $10 dividend declared which is 100% on the Face Value of the share is 10% on the Market Price per unit of the Common Stock. The dividend declared will not increase the Net Asset Value per unit of the common stock, it will only reduce the investment cost from $100 to $90.