Osborn Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last six months have been a real cash drain on the company; its profit margins have been greatly narrowed by increasing competition. With a cash balance sufficient to meet only day-to-day operating needs, the president, Barry Sigle, has decided that a stock dividend instead of a cash dividend should be declared. He tells Osborn’s financial vice president, Mandy Drummond, to issue a press release stating that the company is extending its consecutive dividend record with the issuance of a five percent stock dividend. “Write the press release convincing the stockholders that the stock dividend is just as good as a cash dividend,” he orders. “Just watch our stock rise when we announce the stock dividend; it must be a good thing if that happens.”
Who are the stakeholders in this situation?
Is there anything unethical about president Sigle’s intentions or actions?
What is the effect of a stock dividend on a corporation’s stockholders’ equity accounts?
Which would you rather receive as a stockholder—a cash dividend or a stock dividend? Why?
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