How Stock Dividends work.?
I’ve been looking at a penny stock for a little while now and in the quote below, it says that a stock dividend of 3:1 will be paid on April 8th. Does this mean that if I buy 1000 shares at $.10 a share on April 7th, on April 15th i will now own 3000 shares at $.10 a share?
“Earth Dragon Resources, Inc. (OTCBB: EARH) (the “Company”) is pleased to announce a 3:1 stock dividend of the Company’s common stock.
After an encouraging fiscal 3rd quarter, the Board of Directors voted to approve a stock dividend to all shareholders of record as of April 8th, 2011. Those shareholders of EARH stock on the closing date of April 8th are entitled to the dividend payment. The Company has set a payable date of April 15th, 2011.”
No – when the stock dividend is issued, you will own 4,000 shares (you will get 3 for every 1 you own, so you would get 3,000 added to your 1,000) and each share would be worth $.025. The value of your investment would remain the same as the newly issued shares dilute your holdings. However, that means that your volatility will increase. A $.01 change in price now ripples across 4,000 shares instead of 1,000.
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