According to a practice question I did, ROE is unaffected by a 100% stock dividend. My understanding is that the stock dividend would increase total stock outstanding and thereby increase the denominator in the ROE formula, resulting in a smaller ROE. So how is ROE ‘unaffected’? Thank you
Stock dividend - increases the # of shares, but value of the Equity remains the same, doesn’t it? CP
because ROE is based on the value of equity, not the number of shares outstanding. So if you 2x the shares, you 0.5x the share-price. Same value. Same ROE.
My guess would be that the funds for the stock dividend come out of retained earnings and go into common stock oe whatever its called, therefore overall leaving shareholders equity unaffected.
Thanks for refreshing my memory- true, the denominator in the ROE formula is the value of equity, not the number of shares outstanding. As the decreasing value of individual shares is offset by the incresing number of shares outstanding, total value is unchanged. Many thanks for the prompt response
ROE = NI/Sales x Sales/Total Assets x Total Assets/SE No way does a 100% stock dividend affect Profit margin, Total Asset Turnover, or financial leverage
Just to add my two cents to an already answered question - a 100% stock dividend is about the same as a stock split. It doesn’t really do anything (why do people do this?).
dont they say its to keep the share price within an “optimal range”… i think its just a cheap way out, to keep all the plebs happy
In this day in age, with transactions costs so low and odd lots treated the same as round lots, most times splitting your stock does little. But I think that smaller investors would rather have 100 shares of a $10 stock than 25 shares of a $40 stock, even though it is exactly the same. There are outliers, like BRKa that really should split. And just remember, in general splits and stock dividends have no effect on anything but shares outstanding and dividends per share. Just about everything else stays the same.