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Smoky Joe’s, Inc., a rapidly growing chain of BBQ restaurants, has had considerable increases in the value of their common stock over the years. Normally, the Board of
Directors declares a modest cash dividend. But this year, they decided to issue a 50% stock dividend. Your friend, a new investor that saw potential in the company
early on, came to you excited about the news, saying that he is getting free stock and that this is much better than the cash dividends from last year. Using what you
have learned in accounting thus far, respond to your friend’s statement including the following points:
What does a 50% stock dividend really mean?
Is your friend really getting “free stock”?
Which would you prefer, a cash dividend or a stock dividend?
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