Your Entitlements As A Common Stock Holder

by David Jenyns on June 19, 2009

Common stock entitlements are somewhat equivalent to special privileges: As the value of the company increases, the common stock holders automatically receive an increased share. For example, we will sup–pose that the Quicker Freezit Corporation has 200,000 shares of capital stock outstanding and wishes to sell an additional 100,000 shares for use in expanding its facilities. A stock dividend is a means of increasing the number of outstanding shares without actually selling any additional stock.

For example, suppose that the Little Gadgette Manufacturing Company has 500,000 shares outstanding and declares a 20 percent stock dividend. It is not at all unusual for a company whose shares are quoted at $60 to declare a 100 percent stock dividend so as to have the stock in the $30 price class. It also seems a truism that John Doe would rather own 20 shares at $30 than 10 shares at $60.

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