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They are paying a dividend, a stock dividend in this case. Stock dividends are deemed to be more favourable to the investor because they have now been given the

They are paying a dividend, a stock dividend in this case. Stock dividends are deemed to be more favourable to the investor because they have now been given the choice of when they want that part of the company to be transformed into cash. Both a cash dividend and a stock dividend dilute the existing shares price by exactly the same amount at the time that a company chooses (as long as they are of the same value of course). In the case of the stock dividend, the investors themselves are not diluted however. Koninklijke Boskalis Westminster lets its shareholders choose whether they want to receive their yearly dividend in cash or in the form of newly created shares, creating a paradox in which everyone gets less by choosing more. This is not necessarily true. It depends on the current and future value of the company. If you get a cash dividend now and the value of the company rises in a month, then you've lost out on that upward movement.

DennisP 10y ago
By that argument, a 2:1 stock split is equivalent to paying a cash dividend totaling half the company's market cap.
- mapleoin 10y ago
  It is, yes, if you mean "stock dividend" rather than "cash dividend". Although I'm not sure about the tax implications.
  - DennisP 10y ago
    Yes, I agree that a stock dividend is equivalent to a stock split. But you argued that a stock dividend is also equivalent to a cash dividend. In that case a cash dividend is equivalent to a stock split, which is clearly not the case. A stock split leaves shareholders with exactly the same share of the company they had before, it's just divided into smaller increments. It also leaves the company's balance sheet exactly the same. What's actually equivalent to a cash dividend is a stock buyback. That gives each shareholder a larger portion of the company, and removes cash from the balance sheet. Companies will often do stock buybacks in place of cash dividends. They never do stock splits in place of cash dividends, because splits have no effect on shareholders' wealth. If a company awards new shares to one specific person, that's different. And you're right, it has the same effect on all the other shareholders as if the company paid that person cash. That person gets more and it comes out of everybody else's pocket. But when everybody gets new shares it's just a split.
    - mapleoin 10y ago
      > But you argued that a stock dividend is also equivalent to a cash dividend. They are not equivalent, no. That's what I was trying to emphasize with the difference in choice available to the investor. > They never do stock splits in place of cash dividends, because splits have no effect on shareholders' wealth. Neither do cash dividends. You own $100 of a company worth $1000. The company issues a 5% dividend. The company is now worth $950. You now own $95 of the company and got a $5 dividend. Wealth unimpacted (disregarding tax and future changes in the company's valuation of course).
jackgavigan 10y ago
> If you get a cash dividend now and the value of the company rises in a month, then you've lost out on that upward movement. 1. Not if you use the cash dividend to buy more shares. 2. The same thing would happen if you sold the "dividend" shares as soon as you received them.
- mapleoin 10y ago
  I agree.
kgwgk 10y ago
Getting a stock dividend is (assuming everyone does get it) a non-event. You had $x in shares of a company valued at $y before the transaction, and you have exactly the same afterwards. The only difference is that you had 1000 shares and now you have 1045. Saying that getting stock dividends is more favourable to the investor that getting cash dividends is equivalent to saying that getting no dividend at all is more favourable than getting a cash dividend.
- spacecowboy_lon 10y ago
  depends on how you are taxed
  - kgwgk 10y ago
    If your point is that depending on how you are taxed you might prefer not getting anything than getting a cash dividend, I agree.

DennisP 10y ago

By that argument, a 2:1 stock split is equivalent to paying a cash dividend totaling half the company's market cap.

mapleoin 10y ago
It is, yes, if you mean "stock dividend" rather than "cash dividend". Although I'm not sure about the tax implications.
- DennisP 10y ago
  Yes, I agree that a stock dividend is equivalent to a stock split. But you argued that a stock dividend is also equivalent to a cash dividend. In that case a cash dividend is equivalent to a stock split, which is clearly not the case. A stock split leaves shareholders with exactly the same share of the company they had before, it's just divided into smaller increments. It also leaves the company's balance sheet exactly the same. What's actually equivalent to a cash dividend is a stock buyback. That gives each shareholder a larger portion of the company, and removes cash from the balance sheet. Companies will often do stock buybacks in place of cash dividends. They never do stock splits in place of cash dividends, because splits have no effect on shareholders' wealth. If a company awards new shares to one specific person, that's different. And you're right, it has the same effect on all the other shareholders as if the company paid that person cash. That person gets more and it comes out of everybody else's pocket. But when everybody gets new shares it's just a split.
  - mapleoin 10y ago
    > But you argued that a stock dividend is also equivalent to a cash dividend. They are not equivalent, no. That's what I was trying to emphasize with the difference in choice available to the investor. > They never do stock splits in place of cash dividends, because splits have no effect on shareholders' wealth. Neither do cash dividends. You own $100 of a company worth $1000. The company issues a 5% dividend. The company is now worth $950. You now own $95 of the company and got a $5 dividend. Wealth unimpacted (disregarding tax and future changes in the company's valuation of course).

jackgavigan 10y ago

> If you get a cash dividend now and the value of the company rises in a month, then you've lost out on that upward movement. 1. Not if you use the cash dividend to buy more shares. 2. The same thing would happen if you sold the "dividend" shares as soon as you received them.

mapleoin 10y ago
I agree.

kgwgk 10y ago

Getting a stock dividend is (assuming everyone does get it) a non-event. You had $x in shares of a company valued at $y before the transaction, and you have exactly the same afterwards. The only difference is that you had 1000 shares and now you have 1045. Saying that getting stock dividends is more favourable to the investor that getting cash dividends is equivalent to saying that getting no dividend at all is more favourable than getting a cash dividend.

spacecowboy_lon 10y ago
depends on how you are taxed
- kgwgk 10y ago
  If your point is that depending on how you are taxed you might prefer not getting anything than getting a cash dividend, I agree.