Question: Cooper Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last 6 months have been a real cash drain on the company, however, as profi t margins have been greatly narrowed by increasing competition. With a cash balance suffi cient to meet only day-to-day operating needs, the president, Sonny Boyd, has decided that a stock dividend instead of a cash dividend should be declared. He tells Cooper's fi nancial vice president, Dana Marks, to issue a press release stating that the company is extending its consecutive dividend record with the issuance of a 5% stock dividend. "Write the press release convincing the stockholders that the stock dividend is just as good as a cash dividend," he orders. "Just watch our stock rise when we announce the stock dividend; it must be a good thing if that happens."
Instructions: (a) Who are the stakeholders in this situation?
(b) Is there anything unethical about president Boyd's intentions or actions?
(c) What is the effect of a stock dividend on a corporation's stockholders' equity accounts? Which would you rather receive as a stockholder-a cash dividend or a stock dividend? Why?