How does the issuance of a common stock dividend normally impact the calculation of a company's price-earnings (P/E)ratio?

Question

Quizplus · Accepted Answer

Price-Earnings Ratio = Market price per share ÷ Earnings per share
A common stock dividend increases the number of shares of stock outstanding.Because a greater number of shares represents the same ownership interest in the same amount of assets,the market value per share of a company's stock normally declines as a result of a stock dividend.In addition,because a greater number of shares will be outstanding,the EPS will decline.Thus,the declines affect both the numerator and denominator.To determine how the declines affect the P/E ratio itself,additional information (i.e. ,the current market price and EPS,and the stock dividend percentage)would be required.

How Does the Issuance of a Common Stock Dividend Normally