Stock Dividends and Stock Splits
A stock split is an action by a corporation where existing shares of a specific company are subdivided into numerous shares to decrease the cash value of the individual shares. In stock split, only the number of shares increases but there is no increase in each of the shares’ dollar value. Stock splits are usually done by the company when the price of a share is has become too expensive for an investor to buy heaps of shares.
An illustration of stock split is that for example, one share in Factual Company cost $1000 dollars, an investor would need $100,000 to be able to get 10 shares. If the company would lower the cost of each share to $100 then an investor would only need $1000 to get 10 shares. The essence is that and investor will now own more number of shares but the actual cash value of the shares did not increase. Stocks splits are usually done in terms or fractions. If you had a share of 300 stocks before a 2-1 split by the company, then you’ll have 600 shares after the split. A 2-1 split means that for every stock you own, you’ll receive an additional share.
The main difference between a stock split and stock difference is that in stock split, there is no cash value involved because only your number of shares increase since the value of each share you have decreases while in stock dividend a cash value is involved. In stock dividend, your number of shares increases as a result of an additional share issued by the company as your dividend.
References:
AccountingCoach. (2012, January 29). Stock Splits and Stock Dividends. Retrieved from http://www.accountingcoach.com/online-accounting-course/17Xpg05.html
Thomas, Kaye A. (2012, January 29). Stock Dividends and Splits. Retrieved from http://www.fairmark.com/capgain/basis/splits.htm
