Since in the Financial Statements section we described stock dividends and splits, here we will focus on their effects by considering an example.
Example 1: Cash Dividend
In 2004, Company ABC generated a net income of $12 million and paid a dividend of $1 million to preferred stockholders.
The first step is to average out the number of months the shares were outstanding:
Answer: Basic EPS = $12 million - $1 million / 3.8 million = $2.89
Example 2: Stock Splits and Dividends
Stock splits and dividends are applied to all shares issued prior to the split and to the weighted average number of shares at the beginning of the period. In other words, if in this quarter a company declares a 2-to-1 stock split, then double the number of outstanding shares of prior months.
Furthermore, if the company declares in Q3 a stock dividend of 10%, then increase the number of shares outstanding by 10% of prior months. Shares that are repurchased from treasury after the stock split and dividends should not be adjusted.
The first step is to account for the stock dividend in Q3:
The second step is average out the number of month the shares were outstanding:
Answer: Basic EPS = $12m -$1m/ 4.28m = $2.57
InvestingMost trades, including short sales and options, aren't materially affected by a stock split. Still, it's important for shareholders to understand how these events impact various aspects of investing. ...
InvestingWe explain what they are, the thinking behind them as well as their results.
InvestingCorporate actions are processes that change a company’s stock. Here are a few examples.
InvestingWarren Buffett's Berkshire Hathaway recently split its stock. Is this a sign to buy?
InvestingFind out how much your investment would be worth in 2016 if you had purchased 100 shares during JPMorgan's IPO, including the impact of dividends and splits.
InvestingFind out how much you would have made if you had invested $1,000 during Amazon's IPO, including how the power of the stock split affects investment growth.
InvestingFind out why a stock with a six-figure share price can still be a good value.
InvestingIf stock splits and buybacks have been a bit of a mystery to you, you're not alone. Learn some great tips.
InvestingTo find the best dividend stocks, focus on total return, not yield.
InvestingUnderstanding dividends and how they work will help you become a more informed and successful investor.