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Calculating the stock dividends and cash dividends

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Assume that you own 3,000 shares of Blueco, Inc.'s common stock and that you currently receive cash dividends of $.42 per share per year.

a. If Blueco, Inc., declared a 5% stock dividend, how many shares of common stock would you receive as a dividend?
b. Calculate the cash dividend per share amount to be paid after the stock dividend that would result in the same total cash dividend (as was received before the stock dividend).
c. If the cash dividend remained at $.42 per share after the stock dividend, what per share cash dividend amount without a stock dividend would have accomplished the same total cash dividend?
d. Why would a company have a dividend policy of paying a $.10 per share cash dividend and issuing a 5% stock dividend every year?

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Solution describes the cash dividend amounts and stock dividend shares in the given scenario.

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Assume that you own 3,000 shares of Blueco, Inc.'s common stock and that you currently receive cash dividends of $.42 per share per year.

a. If Blueco, Inc., declared a 5% stock dividend, how many shares of common stock would you receive as a dividend?

Total number of shares hold=3000
Sock dividend=5%
Number of shares received as dividend=3000*5%=150

b. Calculate the ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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