Stock dividends

Bibliographic data

Monograph

Identifikator:: 175754061X

URN:: urn:nbn:de:zbw-retromon-136496

Document type:: Monograph

Title:: Stock dividends

Place of publication:: Washington

Publisher:: U.S. Gov. Print. Off.

Year of publication:: 1927

Scope:: vii, 273 S.

Digitisation:: 2021

Collection:: Economics Books

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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Conclusions

Collection:: Economics Books

18 STOCK DIVIDENDS aggregated $2,692,230,607 while the surplus amounted to $2,875,- 724,634. In other words, the surplus was equal to approximately $1.07 per dollar of capitalization. Seven years later surplus had increased to only $3,193,568,741 but the capital stock had more than doubled ($6,008,069,290) and the surplus per dollar of capitalization had fallen to 53 cents. As the amount of surplus per dollar of capitalization was 60 cents for these same corporations in 1913, it is apparent that the interests of the shareholders were relatively less well protected by the undistributed surplus at the close of 1926 than they were at the beginning of 1913 despite the enormous profits during these 14 years. For this the enormous stock distribution of the second period must be blamed primarily, since such an extensive decline could not have occurred otherwise. It is obvious that a continuation of surplus distribution at a rate corresponding to that of the last seven years will carry the surplus per dollar of capitalization to a point appreciably below that of 1926 as well as 1913. The declaration of stock dividends on the scale of the last few years does not appear to be the result of any controlling necessity, and seems to be of questionable advantage as a business policy. In the first place, the reduction of the surplus through stock dis- tribution leaves the shareholder’s equity in a corporation precisely the same as it was, as measured by its book value. The result in this respect is the same as if the corporation increased the number of shares of its capital stock by splitting the original quantity into the same number as is outstanding as a result of the stock dividends. The important development in either case is that the total cash divi- dends paid after either a split up or a stock dividend are frequently, if not generally, greater than before, and the stock itself may be of a greater aggregate market value. Second, the stock dividend is not altogether advantageous to the shareholders of the corporation because this policy places permanently beyond their reach for purposes of any subsequent distribution in cash or other assets whatever part of the surplus is capitalized. From the standpoint of the corporation it has been argued that this is an advantage, since new capital has in effect been thus obtained without the necessity of selling new securities. But essentially this is only an argument for financing capital requirements from earnings and hence is not inseparably or peculiarly related to stock dividends. Third, such capitalization of surplus automatically reduces the total surplus and surplus per dollar of stock capitalization and per share below that which would be available if the capital stock is split up into the same total number of shares. The corporation surplus serves as a reserve fund out of which dividends may be paid, when not earned during the current year, and against which losses and adjustments (if not too large) may be charged, thus avoiding possible impairment of the capital investment and inability to pay dividends without a readjustment of capital structure, even though such dividends are earned. On the other hand, where no stock divi- dends are declared, stockholders may get a wrong impression of the nature of their property if the surplus has in major part been already embodied in fixed assets. The capitalization of that part of accumu- lated surplus thereby rendered unavailable for dividends or for reserve funds that may be needed later might be defended under such circumstances as a desirable correction of capital accounts.

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