Issuance of Stock dividends in a declining market: effect?
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Please help with the following question. Provide at least 300 words and include explanations as part of your answer.
What if you received the stock dividends when the company was at a very high point market-wise and then the bottom falls out of the market?
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Solution Summary
This posting involving accounting for corporations. The following solution explains the effects of stock dividends on the value of your investment in detail. There are also examples included to understand the dollar and number of share changes. The explanation is given in 342 words.
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Problem: What if you received the stock dividends when the company was at a very high point market-wise and then the bottom falls out of the market?
Solution:
In reviewing what a stock dividend does to your share or interest in the corporation, remember that it does nothing. When the number of shares goes up because you received a stock dividend, the market price adjusts down so you have the same value you had before (assuming no other market fluctuations).
Example: ...
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