>> Those are both excellent questions.
One reason to do a stock dividend might be that you don't have the cash to
pay dividends, so you give stock instead.
Although that would be viewed as bad news if you were doing that.
Because it would mean that you're, you're constrained on cash flow.
I think a more common reason that you see stock dividends, and
especially stock splits, is there's this investor psychology finding out
there about something called the natural trading range.
And there's been research that found, that's found that investors don't like to
trade in stocks where the stock price is too low, you know,
say below $20 a share, or too high like in the hundreds, above a $100 a share.
So what happens is the company is growing, it's stock price is going up.
The managers see that their stock price is going to go outside of this trading range.
They're afraid that they're going to lose some investors as a result.
So a stock dividend, or specialty stock split will reduce the company's stock
price back in to this natural range.
[LAUGH] And it turns out that this kind of stock split or
stock dividend would be interpreted as good news.
Because it's managers saying, hey,
we think our stock price is going to continue to go up substantially.
And so to get it back in this range that you're comfortable with,
we're going to split the stock and basically divide the stock price by two.
Now there's obviously exceptions out there,
like Berkshire Hathaway has a stock price which is in the tens of thousands.
But the fact that I knew that off the top of
my head indicates that they are the exception rather than the rule.
If you look, most stocks have prices below $100.
And part of it is that when the stock price starts getting too high,
managers will do these stock dividends or
stock splits to try to bring it down into this more comfortable range for investors.