Molina Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last 6 months, however, have been a cash drain on the company, as profit margins have been greatly narrowed by increasing competition. With a cash balance sufficient to meet only day-to-day operating needs, the president, Rob Lowery, has decided that a stock dividend instead of a cash dividend should be declared. He tells Molina’s financial vice president, Debbie Oler, 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.”
Who are the stakeholders in this situation?
Is there anything unethical about Lowery’s intentions or actions? Explain your answer.
What account in the balance sheet should be positive for the company to pay stock dividends?
What is the effect of a stock dividend on a corporation’s stockholders’ equity accounts? Explain.