Question

1. Compare and contrast share dividend with cash dividend used by firms in their payout policy.

Answer 1

A cash dividends is the payments made by a company to its shareholders in cash or real money when the company performs better in the market. This is the return that a shareholder receive for taking the risk in the company and payment are made as a fraction of the per share price.

Compared to cash dividends, a Share dividend is payments made by a company in the form of its share instead of cash. ie The company will distribute additional shares to the existing share holders. This is beneficial for the company because, the company's cash position will be higher even though they are distributing the dividend and this can be used for further investments. Whereas the major disadvantage is that it will dilute the EPS of the company.