No. of Recommendations: 15
I said stock dividend , not dividend,..just fyi.
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I get that but a stock dividend is no different from a stock split which is meaningless to everybody involved.
A stock dividend is a lot like a placebo. Almost meaningless. Sometimes people feel better after taking a placebo.
Yes, a stock dividend is just a stock split in a strange ratio. It has no effect on the value of any shareholder's position. But it's not entirely without effects.
In the case of Berkshire, I can see a teeny tiny case for the following:
Each year, each holder of an A share gets sent 30 B shares. This is economically equivalent to a stock split in the ratio 102:100. A 2% "stock dividend".
Each holder of 50 B shares gets sent one B share. (for positions of fewer than 50 B shares or not an even multiple of 50 shares, it could be paid out as a cash dividend, as is usual for the "remainder" in buyout situations).
In terms of economic consequences, both classes are treated equally, and in fact nothing has changed.
Yes, this is economically meaningless. But it would have two small effects--
* The holders of A shares could do periodic modest liquidations without having to convert A shares to B shares, something they can not currently do.
* Those shareholders who aren't quite clear on the concept of "economically meaningless" might think they are getting a dividend or something for nothing, which some of them might like. It's a bit of legerdemain in that sense, but there is nothing horrible about making people happy, especially when it is essentially cost free.
There are downsides, of course. It means millions of people (and brokers) having to do a little bit of fiddly bookkeeping, whether they sell the shares or not.
It would also have a subtle effect of reducing the aggregate voting power of all A shareholders at the expense of B holders, simply by shifting the ratio of the number of shares outstanding. But only a tiny amount, comparable to the effect of Berkshire doing stock repurchases of A shares and B shares in any ratio other than 1:1500.
Jim
