A firm paying a stock dividend will experience a drop in its earnings per share but its shareholders' total claim on earnings will increase.

Question

Quizplus · Accepted Answer

When a firm pays a stock dividend, the total number of shares outstanding increases, but the total amount of earnings remains the same. Therefore, the earnings per share will decrease, but the shareholders' total claim on earnings will not increase.

A Firm Paying a Stock Dividend Will Experience a Drop