Compare and contrast share dividend with cash dividend used by firms in their payout policy.

Compare and contrast share dividend with cash dividend used by firms in their payout policy.

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Expert Solution

While both share dividends and cash dividends are kinds of dividend payments to shareholders both are inherently different.

Cash dividends, as the name suggest, are cash payments to the shareholders. The cash dividends are payments taken directly from the firm’s income. Share dividends are different in the sense that they are paid as additional shares to the existing shareholders and not as cash payments. Furthermore unlike cash dividends share dividends do not come out of the firm’s income.

From the point of view of shareholders cash dividends provides the shareholders with steady payments of cash that can be used to reinvest in a company. This of course depends on the desire and inclination of the shareholders. On the other hand holders of stock dividends can sell their stocks at a future point in time and book capital gains. They can also sell them immediately to get cash. As such there is an added element of flexibility in case of share dividends for the shareholders.

jeff jeffy answered 1 year ago

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