ACC 556 Week 8 Discussion – Stock Split or Dividend

Please respond to the following:

• Differentiate
  between a stock split and a stock dividend. As the financial manager
  for Tesla Corporation, which would you recommend for Tesla? Provide
  support for your rationale.

Be sure to respond to at least one of your classmates’ post below:

Hello Classmates & Professor:

Differentiating Between a Stock Split and a Stock Dividend:

Stock dividend is a distribution of additional shares of a company’s
stock to existing shareholders whereas a stock split is done to divide
the existing. On declaring stock dividends, there is no change in face
value of shares. In contrast, in a stock split, the face value of the
share decreases. Stock dividend and stock split are two aspects that are
confused easily due to many similarities between them. Both result in
an increase in the number of outstanding shares in the company without
affecting the total market value. The key difference between stock
dividend and stock split is that while stock dividend allocates a number
of shares free of charge based on the prevailing share ownership, stock
split is a method where existing shares are divided into multiple units
with the intention of expanding the number of shares.

Stock dividend apportions a number of shares free of charge based on
the current share ownership. Stock split divides the existing shares
into multiple shares with the intention of expanding the number of
shares. Stock dividend is usually offered in situations where the
company is unable to pay a cash dividend. Stock splits are done to
improve the liquidity of the shares. Stock dividends are only available
to existing shareholders. Both existing shareholders and potential
investors can benefit since share prices are reduce

Both stock dividend and stock split results in an increase in the
total number of shares outstanding. The main difference between stock
dividend and stock split mainly depends on the purpose they are issued
for, as both result in similar outcomes. Stock dividends is a suitable
option for short term cash limitations; however, this may not be liked
by many investors since the majority expect regular incomes that only
cash dividends can provide.

As the financial manager for Telsa Corporation, I would recommend a
stock split for the following reasons: Accessibility to Retail
Investors: Telsa’s stock has a history of trading at a high per-share
price, which can deter retail investors which limited capital from
investing. A stock split would reduce the per-share price, making
Telsa’s stock more accessible to a broader range of investors. This can
potentially increase demand and trading activity. Positive Market
Sentiment: Can attract more investors, potentially leading to short-term
price appreciation. Liquidity Enhancement: Higher liquidity can reduce
trading spreads and enhance overall market efficiency. No cash outflow:
Importantly, a stock split does not involve any cash outflow, preserving
Telsa’s cash for strategic investments or operational needs.

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