ABC Corporation recently announced its plans to pay a 5 percent stock dividend in addition to its scheduled $0.32 quarterly dividend, which has been paid on its common stock in all of the previous 13 quarters. The ex-dividend date will be one month after the announcement. ABC Corporation hadn’t paid a stock dividend in the past nine years. You own 100 shares of ABC Corporation common stock valued at $68 per share. Which of the following explanations accurately projects the effect of these transactions?
A. Dilution will effect a 5 percent decline in price per share. That will be offset by the 2 percent (annualized) dividend for a net decline of 3 percent in the stock price.
B. The 5 percent stock dividend is equivalent to 1-for-20 stock split. Stock prices generally rise after stocks split, so the 5 percent dilution effect will be reduced to either a price rise or a decline that’s smaller than 5 percent.
C. The stock price will drop about 5 percent if all other factors remain constant.
D. The discounted value of the stock split and will render a price decline smaller than 5 percent.