Stock dividends: ABC Co. stock is currently trading for $54. Assume there is no new information about the company. If the company issues a 10 percent stock dividend, what will the approximate price of the stock be after the stock dividend is issued?

Question

Quizplus · Accepted Answer

A 10% stock dividend means that for every 10 shares an investor holds, they will receive an additional share. This increases the number of outstanding shares in the company, but does not change the overall value of the company. Therefore, the market price per share should decrease proportionally to reflect the increased number of shares. 
After the stock dividend, there will be 1.1 times the original number of shares outstanding, so the new price per share should be the original price divided by 1.1, or approximately $49.09 per share (rounded to the nearest cent).

Stock Dividends: ABC Co