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Author: miclombardo Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2172  
Subject: Where are the Customer's Yachts Date: 2/15/2012 4:13 AM
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Hi fools.
Chapter II of "Where Are The Custormer's Yachts" presents "a little aptitude test", in order to ascertain whether one should consider a careen in finance.
Among other questions, this one puzzles me: "If a stock which is not paying any dividend is split two for one, how much good does that do to the stockholder? (if you think it does him any real good, come down and join our sales department, but steer clear of out trading department). Thus implying it doesn't do any real good.

I understand that if a stock doesn't pay any dividend and it is split 2-1 the investor's situation remains the same.
i.e.
investor holds 1 stock of Roman's Empire (fictional company)
price of 1 stock= $10
split 2-1
price of 2 stocks= 2*$5=$10
investor owns 2 stocks of Roman's Empire

what about the case where the stock is paying some dividend?
investor holds 1 sotck of Roman's Empire
price of 1 stock= $10
dividend = $2
div. yield = 20%
split 2-1
price of 2 stocks= 2*$5=$10
dividend = $1
div. yield = 20% (assuming the same dividend yield)
investor owns 2 stocks of Roman's Empire

Is is safe to assume, in a split 2-1, that the dividend yield would be the same as before the split? or companies paying dividend and splitting shares usually decrease the dividend?
This aptitude test has been puzzling me for some time, and maybe I shouldn't own any stock at all!!
thanks,
mic
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Author: kahunacfa Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1850 of 2172
Subject: Re: Where are the Customer's Yachts Date: 2/24/2012 1:06 AM
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...Is is safe to assume, in a split 2-1, that the dividend yield would be the same as before the split? or companies paying dividend and splitting shares usually decrease the dividend?
This aptitude test has been puzzling me for some time, and maybe I shouldn't own any stock at all!!
thanks,
mic
- miclombardo | Date: 2/15/2012 4:13:25 AM | Number: 1849

When a dividend paying stock splits, the dividend per share usually splits porportionally as well. For example, for a company that pays a dividend of $0.40 per share each quarter splits the stock 2 for 1, the dividend on the split stock becomes $0.20 per post-split share each quarter.

Kahuna, CFA
Investment Professional
1974 - Present

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Author: kahunacfa Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1851 of 2172
Subject: Re: Where are the Customer's Yachts Date: 4/4/2012 3:29 PM
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All of the institutional customers of my Investment Research and Investment banking firm, when I still owned it had Yachts. A great many of the firm's clients were Hedge Funds.

Kahuna, CFA
Investment Professional

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