Question

Which of the following statement is correct regarding dividends?
A) By paying the same dollar amount of dividend per share each quarter, the firm will always
have the same dividend yield each quarter.
B) For a 3:2 stock split, the stock dividend is 50%.
C) In order to receive the cash dividend declared, you have to purchase the stock on or after the
record date.
D) In a perfect capital market, the cum-dividend price should be equal to the ex-dividend price.
E) A stock split always increases the firm’s number of shares outstanding.

Answer 1

the correct answer is option E because when a stock split happenes, the total number of shares increases but the overall dollar value of shares remain same. If share price is 100 and shares are 100. When stock split of 1:1 happens, then the number of shares would be 200 and share price will be 50.

When we look at other options, dividend yield is diviend/stock price. So, dividend yield for every quarter changes when stock price changes despite dividend remaining same.

When stock split of 3:2 happens, the dividend would be less than 50%. For getting cash dividend, the shares have to be owned before or on record date. similarly, 4th option is also wrong as it need not be same.