A company executes a stock dividend when it distributes additional shares to its stockholders, rather than a cash payout. The additional shares of stock increases the number of outstanding shares. No cash is exchanged in a stock dividend transaction and the company’s value remains unchanged. The higher number of outstanding shares, combined with the same company value results in a lower price per share. Although your investment’s share price decreases after a stock dividend, the value of your total investment remains unchanged because you own more shares.
1. Find the size of the stock dividend and the ex-dividend date in a company’s 10-K annual report. If you purchased the stock on or after the ex-dividend date, you are not entitled to the stock dividend. You can obtain a public company’s 10-K annual report online from the investor relations section of the company’s website or from the U.S. Securities and Exchange Commission’s EDGAR database. For example, assume a company had a five percent stock dividend with an ex-dividend date of April 2. This means the company issued five percent of its shares outstanding as new shares.
2. Visit any financial website that provides stock quotes. Find the company’s stock price on the date before the ex-dividend date in the historical prices section of the company’s stock quote. In this example, assume the company’s stock price was $10 per share on April 1.
3. Add one to the stock dividend percentage. Continuing with the example from the previous step, add 5 percent, or 0.05, to 1 to get 1.05.
4. Divide the stock price by the Step 3 result to calculate the average stock price after the stock dividend. In this example, divide $10 by 1.05 to get a stock price of $9.52 after the stock dividend.
- The market may react favorably or unfavorably to the announcement or payment of a stock dividend causing the actual stock price to change differently.
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