A §EARCH PM A WGPER ACCOUNTENG
FOR THE ISSUANCE OF
STOCK DIVIDENDS

Thesis {or Hm Dunn of DH. D.
MECHIGAN STATE UNIVBRSI‘ZY
Leonard; E. Plachta
1964

THESIS

0-169

LIBRARY

Michigan State
University

 

This is to certify that the
thesis entitled

A SEARCH FOR A PROPER ACCWNTING FOR
THE ISSUANCE OF STOCK DIVIDENDS

presented by

Leonard E. Plachta

has been accepted towards fulfillment
of the requirements for

_Rh...D.._ degree in Jusiness. Administra tion

Jmflmfl

Major professor

Date May 202 1964

ABSTRACT
A SEARCH FOR A PROPER ACCOUNTING FOR
THE ISSUANCE OF STOCK DIVIDENDS

by Leonard E. Plachta

This study was prompted by the increasing use of
stock dividends and a lack of a fully acceptable method
for the accounting for their issuance. Modern accounting
textbooks present a variety of accounting methods. The
recommendations of the American Institute of Certified
Public Accountants (AICPA) concerning stock dividends
have been seriously questioned by many accountants
through the years. Accounting treatment for stock divi-
dends varies among companies and industries.

Research for this thesis was conducted for the
purpose of determining the following: (1) the extent of
the accounting problems involved; (2) the adequacy of
existing procedures and theory of accounting; (3) the
existence of inconsistencies and special problems; and
(4) the basis for developing a satisfactory method for
accounting for the issuance of stock dividends.

Although stock dividends may take many forms,
this thesis is concerned only with the stock dividend
of common stock issued to holders of common stock.

Research was conducted in the following manner:

1. A review was made of the literature regarding

Leonard E. Plachta

the historical, legal, tax, accounting, and financial
aspects of stock dividends.

2. A list of all companies issuing stock dividends
in 1961 was developed from the statistical data of
Moody's and Standard and Poor's Corporation. This list
excludes foreign corporations, companies paying stock
dividends in stock in other than the issuing corpora—
tions, and companies declaring stock dividends in 1961
but issuing them in 1962. An analysis was made of these
companies regarding the type of industry, the size of
dividend issued, methods of accounting used by these
companies, and other pertinent standards.

3. An analysis was made of the stock dividend data
as presented in the annual issues of the American Insti-
tute of Certified Public Accountants' Accountinngrends
and Techniques In Published Annual Reports.

Major findings of the study include:

1. Not all companies account for the distribution
of stock dividends in the same manner.

2. A majority (70.6%) of the companies issuing
stock dividends are companies whose stock is traded
over—the-counter, that is, unlisted. With the exception
of unlisted commercial banks, these companies' methods
of accounting for stock dividends varied considerably.

3. One industry, commercial banking, is a large

Leonard E. Plachta

user of the stock dividend device. Furthermore, its
method of accounting for stock dividends is consistent
within the industry but contrary to most of the other
companies and to the recommendations of the AICPA.

4. There is considerable confusion regarding the
accounting for a stock dividend and a stock split. The
accounting for stock splits often is similar to the
accounting for stock dividends.

5. Uniformity exists only among companies listed
on the New York Stock Exchange and among commercial
banks. Even then these groups differ from each other.

Based upon the study findings, detailed recommenda-
tions regarding the accounting for the issuance of stock

dividends are presented.

Copyright by
LEONARD EUGENE PLACHTA

yg1965

A SEARCH FOR A PROPER ACCOUNTING FOR

THE ISSUANCE OF STOCK DIVIDENDS

BY

Leonard E? Plachta

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY
Department of Accounting and Financial Administration

1964

 

In

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I (

ACKNOWLEDGEMENTS

The author wishes to express his sincere apprecia-
tion to his dissertation committee, Dr. Stuart B. Mead,
Chairman, and Dr. Gardiner N. Jones and Dr. Rollin H.
Simonds, members, for their cooperation, generosity with
their help and time, and their encouragement; and to
Dr. James Don Edwards, Chairman of the Department of
Accounting and Financial Administration, for his interest
and encouragement.

Indebtedness is acknowledged to the Administration
of the University of Detroit, the author's employer, for
financial assistance, understanding, and other aid; to
the Michigan Association of Certified Public Accountants
for financial assistance; and to the Detroit office of
Arthur Andersen & Co. for making available their facili-
ties for research.

Finally, the author expresses his gratitude to his
wife, Louise, for her assistance in research and typing,
her willingness to make sacrifices, and the encouragement

she provided.

ii

TABLE OF CONTENTS

ACKNOWLEDGEMENTS O O O 0 C O 0 O O O O O O O O C 0

LIST OF TABLES O O 0 O O O O 0 0 0 O 0 O O 0 O O 0

LIST OF

Chapter
I.

II.

APPENDICES O :1 0 O Q 0 t, O 6 O O O O O O 0

INTRODUCTION 0 O 0 0 O O 0 o O O O O O 0

Reasons for This Work . . . . . . . . .
Scope of Study . o . . . . . . . . . .
MethOdOlogy O O O O O 0 0 O O O O O O O

PAST AND CURRENT THEORY OF RECORDING

STOCK DIVIDENDS . . . . . o . . . . . .

Review of Current AICPA Position . . .
Discussion of AICPA's Current Position
Determining transfer value to perma—
nent capital account . . . . . . .
Problems of defining fair value . .
Criticism of fair value . . . . . .
Other proposed transfer values . .
Par or stated value . . . . . . .
Average paid-in value . . . . . .
Other criticisms of AICPA position .
Inconsistency in allowing different
treatment for closely-held corpo-
rations . o . . . o . . . . . . .
Brroneous assumption regarding mar—
ket price reaction . . . . . . .
Predecessors to Bulletin 43, Chapter 7,
Section B . . . . . . . . . . . . . .
Accounting Research Bulletin No. 11 .
Accounting Research Bulletin No. 11
(Revised) . . . . . . . . . . . . .
Distribution of Shares Held as an
Investment . . . . . . . . . . . . .
Summary . . . . . . . . . . . . . . . .

 

 

iii

Page
ii
vi

vii

10
12
14

16

16
19

24
24
25
31
31
32
35

35

36

37
37

42

42
44

Page

Chapter

III. REGULATORY ASPECTS OF STOCK DIVIDENDS . . 46
State Corporation Laws . . . . . . . . . 46
Model Business Corporation Act . . . . 50
Securities and Exchange Commission . . . 52
New York Stock Exchange . . . . . . . . 52
Relationship to current earnings . . . 54
Other Stock Exchanges . . . . . . . . . 57
Other Regulatory Agencies . . . . . . . 59
IV. SOME FINANCIAL ASPECTS OF STOCK DIVIDENDS 61
Criticism of Terminology . . . . . . . . 61
A stock dividend is not a dividend . . 61
Stock dividends are not "paid" . . . . 64

Are Stock Dividends Income to the Reci-
pient? . . . . . . . . . . . . . . . . 65
Market reaction to stock dividends . . 67
Results of market studies . . . . . 67

Inclusion of stock dividend in com-
putation of yield 9 . . . . . . . . 71
Motives Underlying Use of Stock Divi-

dends . . . . . . . . . . . . . . . . 73

Other Alleged Ad antages 0 Stock Divi-
dends . . . . . . . . . . . . . . . . 79
Company Practices and Attitudes . . . . 82
Issuance Costs . . . . . . . . . . . . . 87
Other Disadvantages of Stock Dividends . 89
Summary . . . . . . . o . . . . . . . . 91
V. FEDERAL INCOME TAX AND STOCK DIVIDENDS . . 92
Receipt of Stock Dividend . . . . . . . 93
Present tax status . . . . . . . . . . 93
Change in proportional interest . . . 95
History . . . . . . . . . . . . . . . 97
Issuance Costs . . . . . . . . . . . . . 99

VI. STUDY FINDINGS . . . . . . . . . . . . . . 106

Study of Companies Issuing Stock Divi-

dends in 1961 . . . . . . . . . . . . 107
Scope and method . . . . . . . . . . . 107
Results of study . . . . . . . . . . . 108
Size of stock dividend . . . . . . . llO
Method of accounting used . . . . . 114
NYSE-listed companies . . . . . . 115
Unlisted stocks . . . . . . . . . 115
Commercial banks . . . . . . . . 115
Insufficient earnings . . . . . . . . 117
Analysis of Reporting Practices . . . . 117

iv

Page
Chapter
VII. SUMMARY AND CONCLUSIONS . . . . . . . . . 124

O O O 125
O O O 126

Accounting Problems . . . . . .
O O O 0 127

Review of study findings . . .
Recommendations . . . . . . .
What is a stock dividend? . . . . 127
Full disclosure . . . . . . . . . . 128
Frequency and size of stock distri-
butions . . . . . . . . . . . . . 130
What amount to transfer? . . . . . . 130
What accounts, other than capital
stock, should be involved in the

transfer? . . . . . . . . . . . . 131

What transfer value to use? . . . . 131

The current earnings test . . . . . 132
Accounting for issuance costs . . . 133
Relation to law . . . . . . . . . . . . 134

BIBLIOGRAPHY 0 0 O 0 O O O o O O O O O O O O O O O 135

APPENDIX C O O O O O 0 O O O O O O O O O O C O O O 144

10.

LIST OF TABLES

Coverage of Stock Dividends in Selected
Accounting Textbooks . . . . . . . . . .

Summary of State Corporation Statutes
Regarding Stock Dividends . . . . . . . .

Companies Distributing Stock Dividends in
1961 Classified by Industry and Exchange

Financial Companies Distributing Stock
Dividends in 1961 Classified by Nature of
Business and Exchange . . . . . . . . . .

Percentage of Stock Dividends Distributed
in 1961 According to Size . . . . . . . .

Number of Companies Distributing More Than
One Stock Dividend in 1961 . . . . . . .

Sizes of Stock Dividends Most Frequently
Distributed in 1961 . . . . . . . . . . .

Number of Companies Reporting Stock Distri-
butions Among the 600 Companies Surveyed
Annually by the AICPA for the Period
1952-1961 . . . . . . . . . . . . . . . .

Methods of Recording Stock Dividends Used
by the 600 Companies Surveyed Annually
by the AICPA for the Period 1952-1961 . .

Methods of Reporting and Recording Stock
Splits Used by the 600 Companies Surveyed
Annually by the AICPA for the Period
1952-1961 . . . . . . . . . . . . . . . .

vi

Page

26

47

109

111

112

113

114

119

121

123

Appendix

A.

B.

LIST OF APPENDICES
Page

Accounting Research Bulletin No. 43,

 

Chapter 7, Section B . . . . . . . . . 144
List of Accounting Textbooks Included

in Survey Reported in Table 1,

Chapter II . . . . . . . . . . . . . . 151

State Corporation Statutes Regarding
Issuance of Stock Dividends . . . . . 154

Text of Model Business Corporation Act
Pertaining to Stock Dividends . . . . 170

Companies Issuing Stock Dividends in
1961 O O O O O O O O O O O O O O O O O 172

vii

CHAPTER I
INTRODUCTION

The problem of adequately accounting for the issu—
ance of stock dividends is a serious one, more significant
today than ever before. Not only is the use of stock
dividends increasing steadily, but the number of Americans
owning stock in publicly-held corporations is growing
each year, too. Thus, the growth of these two conditions
means that more and more stockholders are affected each
year by the issuance of stock dividends.

It is proposed in this dissertation to study and
evaluate the accounting treatment of stock dividends in
terms of present practice, recommended procedure, exist-
ing inadequacies and other related aspects.

The first stock dividend on record, a 100 per cent
distribution, was declared by the East India Company in
1682.1 It was not until the United States Supreme Court
made its historic Eisner v. Macomber (252 0.5. 189)
decision in 1920 that this financial device became popular

and widely used. This court decision found that stock

 

lIra U. Cobleigh, "Stocks with Split Personali-
ties," The Commercial and Financial Chronicle, July 26,
1951, p. 327.

1

dividends are not taxable as income to stockholders.1

The increased use of stock dividends after the
decision is reflected in a report of the Federal Trade
Commission, on stock dividends, made in 1926 to the
United States Senate. The report was based on statistics
gathered from over 10,000 corporations in the United
States and indicated that the volume of stock dividends
was about nine times greater in a seven-year period after

the Eisner v. Macomber decision than in the seven-year

 

period preceding the decision.

In recent years the use of stock dividends has been
increasing. Standard and Poor's Corporation reported that
the number of stock dividends issued in 1962 set a
record.3 One of the leading reasons for their increased
use is their popularity with stockholders, both as a substi-
tute for, and as an accompaniment to, cash dividends.
(Other reasons will be considered in greater detail in
Chapter IV.)

Examples of stockholder pressure for stock divi-
dends can be seen in the following quotations taken from

newspaper reports of recent annual stockholders' meetings:

 

1William C. Waring, Jr., "Fractional Shares Under
Stock Dividend Declarations," Harvard Law Review, XXXXIV
(January, 1931), 404.

2A. C. Whitaker, "The Stock Dividend Question,"
American Economic Review, XIX (March, 1929), 20.

3"1962 Stock Dividends Set New Record," The Out-
look, January 14, 1963, p. 983.

Questioned by one of the approximately 400 share-
holders attending the meeting about the possibility
of "raising the dividend a little" or perhaps pay-
ing a stock dividend, Mr. Bafir replied: "The matter
is in the directors' hands.

Stockholder Morton Adler advocated a dividend
policy of part cash and part stock. He said, "I
would like you to consider the advantages of paying
part in cash and part in stock, particularly in
light of the huge expansion program that Consoli—
dated Edison has embarked upon and the enormous
amount of funds that must be raised in the future."

One shareholder advocated stock dfvidends instead
of increases in the cash dividend.

A Fruehauf Trailer Co. stockholder was told he
would have to wait a while for the kind of progress
he wants-~a stock dividend. . .

"How about a little bit of a stock dividend?"
he asked the annual meeting.

Another shareholder suggested that City Investing
"make up" for the recent "cut" in the stock dividend
during the coming year. In September 1961, City
Investing paid a 5% stock dividend; it is slated to
pay only 1% in stock later this month.5

A stockholder brought applause when he said,
"It's been quite a few years since we've received
a stock dividend. How about a nice one?"6

 

1962,

1962,

1963,

1962,

1The Wall Street Journal (Eastern ed.), May 11,
p. 12.

2The Wall Street Journal (Midwest ed.), May 23,
p. 15.
3The Wall Street Journal (Midwest ed.), May 21,
p. 11.
4The Wall Street Journal (Eastern ed.), May 4,
p. 16.

5The Wall Street Journal (Midwest ed.), Sep-

tember 13, 1962, p. St

6The Wall Street Journal (Midwest ed.), May 1,

1963, p. 22.

4

A shareholder asked if he might expect a stock
dividend in the near future. "My dear sir,"
Mr. Cummings replied, "we just got through declar-
ing an increased cash dividend."1

Such stockholder enthusiasm has encouraged corpo-
rations to expand their use of the device. This corpo-
rate tendency has been explained as follows:

. . . a large corporation interested in maintaining
good stockholder relations may almost be forced
into the practice.

When stockholders pressure management for a stock

dividend, it is not easy to convince them that

such a dividend does not represent income, partic-
ularly when other companies are paying them. A
great many corporations paying stock dividends today
may be doing so only for competitive reasons. They
feel it necessary to do so in order that their stock
may continue to find favor among investors.

In spite of record use of stock dividends, there
is widespread misunderstanding and confusion as to just
what a stock dividend is and what it gives to the stock-
holder. There are several reasons for this misunder—
standing.

A stock dividend is often confused with a stock
split-up.3 This confusing state of affairs is summed up

by Mr. C. Austin Barker, economist and student of stock

dividends:

 

1The Wall Street Journal (Midwest ed.), October 12,
1962, p. 4.

2John H. Myers and Loyd C. Heath, "The Periodic
Stock Dividend-—Boon or Sop!" The Commercial and Finan-
cial Chronicle, February 13, 1958, p. 756.

3The terms "stock split-up" and "stock split" are
generally considered synonymous and are often used inter-
changeably, as they are in this dissertation.

.It is apparent . . . that there is no clear-cut
distinction between split—ups and stock dividends.
They overlap in both the legal and accounting areas.
In the economic sense, they differ only in the matter
of degree of dilution; stock split-ups generally are
deemed to represent a greater percentage distribu-
tion. Yet there are, of course, a number of seeming
exceptions involving large stock dividends and
split-ups of less than a 2-for-l ratio.1

The use of the word "dividend" adds to the confu-

sion. It is a misnomer in this case and should be avoided.
The confusion is compounded by the use of the word "paid"
when a stock dividend has been distributed. Further
rnisunderstanding arises when the stockholder sees a
<dec1ared stock dividend listed among the cash dividend
declarations in his favorite financial periodical. An
example of this is the listing of stock dividends in the

"Dividend News" column of The Wall Street Journal, where

stock dividends appear along with cash dividends.

Inaccurate newspaper stories, such as the follow-

ing, add to the confusion.

Standard Oil Co. (Indiana) yesterday declared
a special stock dividend in addition to a regular
quarterly cash dividend of 45 cents a share.

The company will pay one share of Standard Oil
Co. (New Jersey) stock for each 115 shares of
Indiana Standard owned.

Midwest Oil Corp. raised its quarterly dividend
to 45 cents a common share, payable March 11 to

 

lC. Austin Barker, "Are Accounting Requirements
:for Stock Dividends Obsolete?" The Analygts Journal,
XIV (November, 1958), 69.

2The Detroit News, October 17, 1962, p. l6-C.

stock of record Feb. 25. The company paid 40 cents
in preVious quarters. In December Midwest Oil also
paid a stock dividend of one share of Gulf Oil Corp.
for each 80 Midwest shares held.1

Both news stories erroneously report a distribu-
tion of stock of another company, held as an investment
by the distributing company, as a stock dividend. The
term "stock dividend" is generally reserved for distri-
butions of a company's own stock to its stockholders.
There is a considerable difference between a distribu-
tion of a company's own stock and of another company's
stock held as an investment.

Another example of misleading news stories is the
:following item taken from a widely-read financial period-
.ical: "Cash yields from these equities aren't generous,
but returns are augmented by fairly regular additional
lpayments in stock which have definite appeal to investors
"2

in high tax brackets.

Appearing in an earlier issue of the same period-
ical is a similar misleading reference to yield on the

issue of stock dividends:

The issues listed . . . comprise eight diversi-
fied better-grade commons on which stock dividends
are regularly paid. Yields would be considerably
higher than those indicated were the value of the

 

1The Wall Street Journal (Midwest ed.), Febru-
ary 13, 1963, p. 18.

2"Twelve Issues with Stock Dividend Habits,"
Financial World, CX (August 20, 1958), 4.

shares dispersed added to the regular rate of cash
payment.1

The two quotations cited above recommend the inclu-
sion of the market value of a stock dividend in the compu-
tation of the yield of a particular common stock. It is
generally recognized that the receipt of stock dividends
provides no income. The inclusion of a stock dividend
in the computation of yield along with the cash dividend
is not only misleading, but wrong.

An example of the popularity of stock dividends
among stockholders is illustrated by the results of a
survey made in 1955 by a company which wanted to estab-
lish a dividend policy that would be popular with its
stockholders. Mr. Rosenthal, president of Citizens Util-
ities Company, polled all shareholders on the kind of
<dividend policy they favored. He received replies from
70 per cent of the stockholders. Only seven per cent of
the shares represented in the replies favored an all-cash
dividend; 55 per cent favored an all-stock dividend
policy and 38 per cent a half-cash-half—stock plan.2

Although stock dividends are neither new nor

little-used, there is no clear-cut, fully acceptable

xnethod for accounting for their issuance. Modern

 

1"Stock Dividends Paid by These Eight Issues,"
jFinancial World, CIX (February 19, 1958), 7.

2"Stock to Suit the Holder," Business Week, Janu-
ary 14, 1956, p. 107.

8
accounting texts show a variety of treatments. The
recommendations of Accounting Research Bulletin No. 431
concerning stock dividends have been seriously questioned
by many accountants through the years. The Bulletin is
open for criticism in its definition of stock dividends
and in the recommended use of fair value as a method for
determining the amount to be transferred to permanent
capital. Fair value has many interpretations. Account—
ing treatment for stock dividends varies among companies
and industries.

C. Austin Barker states that "accounting require—
ments for stock dividends are one of the most perplexing
problems to managements planning such a distribution."2

As the distinguishing characteristic of a stock
dividend is a transfer to the capital stock account, the
accountant is faced with the problem of accounting for
the transfer. Questions to be answered are:

1. How much per share or in total is to be trans-
ferred to permanent capital, including the capital stock
account? Various values, such as par value, market

value, and average paid-in value, have been suggested,

 

1Committee on Accounting Procedure, Restatement
and Revision of Accounting Research Bulletins: Account-
ing Research Bulletin No. 43 (New York: American Insti-
tute of Certified Public Accountants, 1953), Chapter 7,
Section B, pp. 49-54.

 

2Barker, loc. cit.

used, and encouraged through the years.

2. From which accounts should the amount be
transferred? Should transfers from Paid—In Surplusl be
allowed, or should transfers for stock dividends be made
only from the Retained Earnings2 account?

3. How should the costs of issuing the stock be
handled? Are they a cost of the period and therefore
a deductible expense, or are they in the nature of
organization costs and therefore subject to capitaliza-
tion on the balance sheet?

4. Is it proper to issue a stock dividend in excess
of current earnings? Is a stock dividend a distribution
of current earnings only, or is it a distribution of
current and past earnings of the corporation?

5. What is the difference between a stock dividend
and a stock split? William Werntz has described the

prOblem as a "real dilemma."3

 

lThe Paid-In Surplus account is used to record the
excess of par value or stated value received from the
issuance of capital stock. While the term Paid-In
Surplus is used in this dissertation, other acceptable
synonyms such as Paid-In Capital and Capital Surplus may
appear in direct quotations and in other accounting
literature.

2The Retained Earnings account is used to record
earnings or net income retained in the business. While
the term Retained Earnings is used in this dissertation,
other acceptable synonyms such as Retained Income,
Earned Surplus, and Accumulated Earnings may appear in
direct quotations and in other accounting literature.

3William W. Werntz, "Dilemmas in Today's Report-
ing," The Journal of Accountancy, C (November, 1955),
46-47 0

10

An example of confusion regarding stock splits and
stock dividends is found in the recent newspaper story
headline, "Masco Sets Peak, to Split Stock 100%."1 It is
difficult to visualize a 100 per cent stock split, that
is, stock of a corporation that is completely split!
Apparently what was meant was a 100 per cent stock divi-
dend or (in effect the same) a 2—for-l split.

The most recent survey of stock ownership in the
United States, conducted by the New York Stock Exchange,
indicates that the number of shareholders had risen to
17 million in early 1962. Another two million own shares
in privately~he1d companies. There is also some evidence
that up to 35 million non-shareholders are on the verge

of investing.2
Reasons for This Work

The combination of a growing stockholder popula-
tion, an increasing use of stock dividends by American
corporations, and a lack of a fully acceptable method for
accounting for stock dividends, provided the impetus for
this study. Further encouragement for making this study
was found in the quotation of Professor Raymond J. Cham-

bers in an article on accounting research:

 

1The Detroit News, May 8, 1963, p. 8-D.

2"Stock Ownership," ThelMichigan Economic Record:
AgMonthly Report of Business Conditions in Michigan,
IV (November, 1962), 1.

11

. . . it is common wisdom to re-examine the founda-
tions of one's practices; practices may become so
overlaid with habitual and conventional trappings
that their avowed purposes are no longer well
served.1

Among the purposes of this dissertation are the
following:

1. To define adequately a stock dividend in light
of past and present definitions and the need to distin-
guish it from other similar transactions, considering
both accounting and financial aspects.

2. To determine whether there exists a really
satisfactory way to account for the issuance of stock
dividends. This includes recording the declaration,
accounting for issuance costs, and balance sheet presen-
tation.

3. To study current conditions under which stock
dividends are being declared and the adequacy or the
inadequacy of the accounting treatment for them. It will
be shown that variations exist among companies, indus-
tries, and regulatory bodies.

4. To evaluate the extent to which existing account—
ing treatment helps or hinders the understanding of stock
dividends by stockholders and the general public.

5. To consider the adequacy of present account-

ing reporting standards pertaining to stock dividends.

 

1Raymond J. Chambers, "Why Bother with Postulates?"
Journal of Accounting Research, I (Spring, 1963), 15.

12

Is full disclosure being practiced? Are the users of
the financial statements as fully informed as possible
regarding the issuance of stock dividends?

6. To review the historical development of
accounting concepts regarding stock dividends.

7. To determine the role, both historical and
present, of regulatory agencies such as stock exchanges,
federal and state agencies, and state corporation laws,
and their effect on stock dividend use and their account-
ing.

8. To study the development and the present status
of federal income taxation of stock dividends and the
effects of tax treatment on the accounting for stock

dividends.

Scope of Stugy

Although stock dividends may take many forms,
this study is concerned exclusively with the stock divi-
dend of common stock issued to holders of common stock.
Consequently, other types of stock dividends, such as
preferred on common, common on preferred, one class of
common on another class of common, etc. are ignored.
These types present additional problems that are beyond
the scope of this study.

With the exception of a section in the chapter on

financial aspects of stock dividends and the chapter on

13

federal income tax, the viewpoint in this dissertation
is that of the issuer and not that of the recipient.

Chapter II traces the development of accounting
theory regarding the issuance of stock dividends. Past
and current theory is reviewed. Emphasis is placed upon
Accounting Research Bulletin No. 43, Chapter 7, Section
B, which embodies the latest statement regarding stock
dividends promulgated by the American Institute of
Certified Public Accountants. Events leading up to
Bulletin 43 are reviewed, including the original bul-
1etin, Accounting Research Bulletin No. 11, published in
1941. Chapter II also includes a review of accounting
literature and a survey of current accounting textbooks.
The survey was made to determine the amount of agreement

with Bulletin 43 on the part of leading textbook writers,

 

the methods being taught, and the degree of consistency
among the authors.

Because stock dividends involve the issuance of
securities, it is important that attention be given to
the regulatory aspects of stock dividends. Chapter III
discusses the various state corporation laws and the
roles of the Securities and Exchange Commission and the
New York Stock Exchange. In addition, other lesser
agencies that impose regulation in this area are con-
sidered. Because the accountant has to operate within

the framework of law it is important that these legal and

14

quasi-legal aspects be considered.

In developing a rationale for the accounting for
stock dividends the financial aspects of stock dividends
cannot be ignored. Primary emphasis in all cases is
given to the accounting for stock dividends. It must be
admitted, however, that the stock dividend is a financial
device as well as an accounting device. For this reason,
Chapter IV is devoted to a discussion of some financial
aspects of stock dividends. In this chapter considera-
tion is given to terminology, types of stock dividends,
purposes of stock dividends, issuance costs and other
related items. Also considered is the important ques-
tion, "Are stock dividends income to the recipient?"

As indicated earlier, federal income tax consid-
erations have affected the use and appeal of stock
dividends. Chapter V discusses the federal income tax
and stock dividends, tracing the historical development
of such taxation to the present time.

The bulk of the research findings is reported
in Chapter VI.

Summary and conclusions are presented in the final

chapter, Chapter VII.
Methodology

The following methods of study were used.

1. A review was made of the literature regarding

15

the historical, legal, tax, accounting, and financial
aspects of stock dividends.

2. A list of all companies issuing stock dividends
in 1961 was developed from the statistical data of
Moody's and Standard and Poor's Corporation. This list
excludes foreign corporations, companies paying stock
dividends in stock in other than the issuing corpora-
tions, and companies declaring stock dividends in 1961
but issuing them in 1962. An analysis was made of these
companies regarding the type of industry, the size of
dividend issued, methods of accounting used by these
companies, and other pertinent standards.

3. An analysis was made of the stock dividend data
as presented in the annual issues of the American Insti-
tute of Certified Public Accountants' Accounting Trends
and Techniques in Published Annual Reports. These annual
volumes are studies, made by the American Institute of
Certified Public Accountants (AICPA), of reporting prac-

tices of 600 companies.

CHAPTER II

PAST AND CURRENT THEORY OF RECORDING

STOCK DIVIDENDS

 

Review of Current AICPA Position

Current generally accepted accounting theory
regarding stock dividends is embodied in Chapter 7, Sec-
tion B, of Accounting Research Bulletin No. 43. Entitled
"Stock Dividends and Stock Split-Ups," it was published
in 1953 as a revision of Accounting Research Bulletin
No. 11, its predecessor, which was published in 1941.
(See Appendix A for complete text of Accounting Research

Bulletin No. 43, Chapter 7, Section B.)

 

Bulletin 43 consists of sections, all separately

 

adopted by at least two-thirds affirmative vote of the
20 members of the Committee on Accounting Procedure.
While not in the nature of a "rule" or "law" the pro-
nouncements contained in the various sections carry sub-
stantial weight. In the words of the committee, "the
authority of opinions reached by the committee rests

uPon their general acceptability."l

 

1Accounting Research Bulletin No. 43, op. cit.,
p. 9.

16

17

The Committee on Accounting Procedure explains its
objective as follows:

The principal objective of the committee has been
to narrow areas of difference and inconsistency in
accounting practices, and to further the develop-
ment and recognition of generally accepted account-
ing principles, through the issuance of opinions and
recommendations that would serve as criteria for
determining the suitability of accounting practices
reflected in financial statements and representa—
tions of commercial and industrial companies. In
this endeavor, the committee has considered the
interpretation and application of such principles
as appeared to it to be pertinent to particular
accounting problems.l

Chapter 7, Section B, contains a discussion of
stock dividends and stock splits as pertains to the
recipient and to the issuer. This dissertation chapter
is concerned primarily with the issuer, those elements
pertaining to the recipient being largely ignored. The
following are the main features of the pronouncement:

1. It defines stock dividend and stock split-up,
and distinguishes between the two according to the
desire of management:

a) The issuance of a stock dividend "is
prompted mainly by a desire to give the recipient share-
holder some ostensibly separate evidence of a part of
their respective interests in accumulated corporate earn-
ings without distribution of cash or other property which
the board of directors deems necessary or desirable

to retain in the business."2

 

lIbid., p. 8. 2Ibid., p. 49.

18

b) The issuance of a stock split-up "is prompted
mainly by a desire to increase the number of outstand-
ing shares for the purpose of effecting a reduction in
their unit market price and, thereby, of obtaining
wider distribution and improved marketability of the
shares."1

It views the size of the distribution as a reflec-
tion of management's intention and establishes a divid-
ing line of 20-25 per cent to distinguish between a
stock dividend and a stock split-up.

2. Bulletin 43 establishes the manner of account-

 

ing for such issuances:

a) In the case of a small distribution (less
than 20-25 per cent), considered a stock dividend, "the
corporation should in the public interest account for
the transaction by transferring from earned surplus to
the category of permanent capitalization (represented by
the capital stock and capital surplus accounts) an
amount equal to the fair value of the additional shares
issued."2

b) In the case of a larger distribution (more
than 20-25 per cent), considered a stock split-up, "no
transfer from earned surplus to capital surplus or capi-
tal stock account is called for, other than to the extent

occasioned by legal requirements."3

 

1Ibid. 21bid., p. 51. 3Ibid., p. 53.

19

c) In the case of large distributions (more
than 20-25 per cent) where, because of legal requirements,
the word "dividend" cannot be avoided, the transaction
should be described as a "split-up effected in the form
of a dividend."1

d) In cases of closely-held companies, there
is no need to capitalize earned surplus other than to
meet legal requirements.

3. All the above provisions are based upon the
following:

a) ". . . many recipients of stock dividends
look upon them as distributions of corporate earnings
and usually in an amount equivalent to the fair value
of the additional shares received."2

b) Such views of the stockholders are strength-
ened by small stock dividends that do not materially
change the existing market price.

c) Shareholders of closely-held companies
would have intimate knowledge of their corporations'

affairs and would not have such misunderstanding.
Discussion of AICPA's Current Position
Stock Dividend and Stock Split-up Defined

The definition of stock dividend and stock split-up

 

lIbid., p. 52. 21bid., p. 51.

20

as indicated in Bulletin 43, Chapter 7, Section B, pre-

 

sents a problem to the accountant and to others because
it deviates from the traditional definitions. Tradition-
ally, a stock dividend has been defined basically as a
distribution of a company's own stock to stockholders on
a pro rata basis with an accompanying journal entry that
transfers amounts from a surplus account to a capital
stock account. A stock split-up has been similarly
defined, except without a journal entry indicating any
transfer to the capital stock account. Instead, a stock
split-up was characterized by a reduction in the par or
stated value of the stock.1

Contrary to the traditional viewpoint, the AICPA
stresses the size of the stock distribution in defining
a stock dividend or stock split. Thus, one cannot have
a stock dividend larger than 25 per cent. A distribu-
tion of this size would be called a stock split or pos-
sibly a split-up effected in the form of a dividend.

The Bulletin 43 definition sometimes results in

 

split-ups without a change in par value, accompanied by
transfers to permanent capital. The following excerpts

from two newspaper stories are examples:

 

lSee R. H. Montgomery (ed.), Financial Handbook
(2d ed.; New York: The Ronald Press Company, 1937),
pp. 531, 537; and J. I. Bogen (ed.), Financial Handbook
(3rd ed.; New York: The Ronald Press Company, 1950),
p. 791.

21

Cincinnati Gas & Electric Co. stockholders
approved a 2-for—l stock split and an increase
in authorized shares to 20 million from 10 mil-
lion. . . . After the split, par value of the
shares will continue to be $8.50.1
The $3 par value of common shares will remain
unchanged after the split. The increased capi-
talization will be provided through a transger of
$5,399,928 from the earned surplus account.

These stock distributions would ordinarily have
been called stock dividends but because of their size,
they were termed splits. Size, not conditions, determined
the terminology.

Where once an accounting entry, indicating capital-
ization of surplus, distinguished a stock dividend from
a stock split, now size of distribution does so. This
results in the confusing situations of having stock
splits accompanied by journal entries and other stock
splits without journal entries.

Mr. Walter L. Schaffer, a member of the 1952-1953
Committee on Accounting Procedure of the AICPA, the
committee that wrote Chapter 7, Section B of Bulletin 43,
later explained the committee's action in changing
Bulletin 11 to include the above-discussed definitions:

When the committee on accounting procedure

undertook the revision of ARB 11, the principal
fault that it found and sought to correct was the

 

1The Wall Street Journal (Midwest ed.), April 25,
1963, p. 15.

2The Wall Street Journal (Midwest ed.), August 22,
1962, p. 12.

22

bulletin's failure to recognize the similarity in
general nature and effect of a "common stock divi-
dend" and a "common stock split-up" producing the
same relative increase in number of previously out-
standing common shares and the desirability of

having the same accounting requirements apply, within
certain areas of relative increase, to both.

. . . the one [ hange] it considered to be of the
greatest importance had to do with the differen-
tiation between those transactions which should be
accounted for as stock dividends and those which,
for accounting purposes, should be regarded as
stock split-ups. In general effect, the 1941 bul-
letin regarded any issuance of additional shares
without consideration to be a stock dividend, so long
as it entailed some capitalization of earned surplus,
and to be a stock split-up if it were accomplished
in a manner resulting in no increase in legal capi-
tal. This produced the situation where literal
compliance with the original bulletin would require
a charge against earned surplus equal in amount to
the fair value of the additional shares involved in
the case of every issuance consummated as a stock
dividend, regardless of how relatively great in num-
ber such additional shares happened to be, and no
charge whatsoever if the transaction were consummated
as a split-up, regardless of how relatively few addi-
tional shares would thereafter be outstanding.1

The reason given does not appear to be sufficient
cause for changing the definitions of stock dividend and
stock split. In the original bulletin a stock dividend
required capitalization of earned surplus and a stock
split-up did not. This definition was logical and
required no change. There was no need for becoming con-

cerned about the size of the stock dividend or the stock

 

1Walter L. Schaffer, "Accounting for Stock Divi-
dends and Stock Split-ups," AccountingJ Auditing, Taxes--
1953, Complete Text of Papers Presented at the 66th
Annual Meeting of the American Institute of Accountants
(New York: American Institute of Accountants, 1954),
pp. 144-46.

23

split. The change consummated in the revised bulletin
was not an improvement.

In this regard, Schaffer claims that "it is some-
what incongruous to hold that the accounting treatment
of transactions that are largely identical in force and
effect should differ merely because of the form they may

take or how they may be characterized."1

Certainly
there is nothing "incongruous" in having more than one
method of recording a transaction that is "largely iden-
tical in force and effect."

Although the effect of both types of distribution
is the same, it seems proper to require different
accounting treatment based upon the intention g: manage-
.mggt rather than on the gigs of the distribution. If a
change in par value is intended, the distribution should
be termed a split-up with no attendant journal entry.

If a capitalization of earnings is intended, then the
distribution should be termed a stock dividend and
recorded by a journal entry. Management intention, not
size, should be the governing factor.

The question, whether the stockholder receives
anything when he receives a stock dividend, is discussed
at length in Chapter IV. The answer is important to help

determine the correct accounting treatment for stock

dividends.

 

lIbid., p. 146.

24

Determining Transfer Value to
Permanent Capital Account
The AICPA's pronouncement that fair value of the
stock being distributed is to be used as a transfer value
from retained earnings to the permanent capital account
has raised the problem of definition and has evoked

criticism.

Problems of defining fair value

The determination of "fair value" of the additional

shares issued, as recommended in Bulletin 43 presents a

 

problem. The Bulletin does not elaborate. Generally,
"fair value" is construed to mean "market value." Inas-
much as market prices do fluctuate, there exists the
problem of deciding the moment at which market value is
to be determined for the purpose of determining the
aggregate amount to be transferred. Carman G. Blough
gave the following answer in response to a question of
this nature asked of him:

It would seem to follow that if the shareholder
does think of the stock dividend as in about the
same general category as a cash dividend, he would
attach to the shares of stock their current market
value. Therefore, the use of an average of quota-
tions for a period as long as a year does not seem
suitable. At the same time, isolated "bid" quota-
tions for an inactively traded stock may not be
appropriate. Perhaps an average for a relatively
short period, such as a month, might be the best
answer. We understand that the New York Stock
Exchange usually considers an average unacceptable

25

and that the majority of companies use market price
at the close of the day preceding the declaration.1

A survey of 24 current accounting textbooks revealed
that the following interpretations of "fair value" are
being taught: (1) date of record, (2) "current" with no
further explanation, (3) date of declaration, and (4)
"prior to dividend date" with no further explanation.

(See Table 1.)
Criticism of fair value

Considerable criticism has been directed at the

AICPA's recommendation of using fair value or market

value as a transfer value. An often-heard criticism is
expressed by Robert V. Hunter as follows:

To capitalize market value per share is to rec-
ognize in the accounts, although indirectly, out-
side influences not readily apparent, often
irrational, speculative, and of short duration. . . .
The capital section of the balance-sheet should be
maintained as immune as possible from the erratic
and unpredictable forces at play in the securities
market.2

C. Austin Barker is very critical of the use of
market value for the transfer to the capital stock

account:

. . . the requirement of market value as a measure

 

lCarman G. Blough (ed.), "Accounting and Auditing
Problems," The Journal of Accountancy, CVIII (August,
1959), 76.

2Robert V. Hunter, "Charge Stock Dividends at Par,
Not Market: A Dissent from ARB No. 11," The Journal of
Accountancy, CXV (May, 1953), 544.

 

26

TABLE 1

COVERAGE OF STOCK DIVIDENDS IN SELECTED ACCOUNTING TEXTBOOKSa

 

Classification of Textbooks

 

 

Elemen- Inter- Ad- Mana-
. . Total
tary mediate vanced gerial
Method Described:
Fair market value 7 l 8
only
Fair market and paid- b
. 1 l 2
in values
Fair market and par 1 1 1 3

values

Fair market, par,
stated, and paid- 1 1 2
in values

Paid-in value only 1 1

 

Total of texts
describing 10 4 l 1 16
methods

No methods described 3 5 8

 

Total number of

texts surveyed 10 4 4 6 24

 

Interpretation of Fair
Market Value:

As of record date 1
"Current" 1

Prior to dividend date

L» H F4 P

On declaration date 2

 

Totals 3 2 0 1

m

 

aSee Appendix B for a list of textbooks reviewed.

bMust meet minimum state requirements.

27

of the amount of surplus to be capitalized con-
fronts management with an unpredictable and fluctuat-
ing yardstick when an attempt is being made to plan

a consistent stock-dividend policy. During a rapidly
rising general market, when dilution is most needed
to maintain a popular price level, the market-price
formula restricts the size of stock dividends most
severely. Yet after a sharp downturn, such as the
lOO-point drop in the Dow Jones industrials in

late 1957, the market-price formula permits a greater
stock-dividend dilution on the same amount of surplus,
at a time when corporations least need it. This is
the paradox.1

Mr. Barker goes on to say that the market-price
formula does not lend itself to the consistent continuing
policy of issuing stock dividends in small amounts on a
regular basis, because of wide fluctuations in the market
price.

Carman Blough, Director of Research of the AICPA
at the time of the publication of Bulletin 43, explained
the committee's position regarding the use of fair value:

. . . the reason for specifying the assignment

of a fair value to the shares was not an account-

ing one, but was more in the realm of psychology.

In spite of the fact that there is little basis

for treating a stock dividend by the recipient as
income or as a distribution of corporate earnings,

it is acknowledged that many if not most shareholders
do so interpret it. It was therefore felt wise by
the committee to recommend that an accounting pro-
cedure be followed which would tend to prevent a
misinterpretation of the results.

The AICPA, in an attempt to prevent a misinter-

pretation by the stockholder, contributes to the mis-

interpretation by suggesting the use of fair value. The

 

lBarker, op. cit., p. 71.

2Blough, loc. cit.

 

28

AICPA readily admits that the stockholder receives no
income, but because he thinks he is receiving income,
the accounting profession wants the issuing corporation
to record the event to agree with the stockholder's
misunderstanding. The individual shareholder's unin-
formed viewpoint has controlled the accounting treatment.
Mr. Robert Hunter agrees that the erroneous interpreta-
tion of the shareholders as to the true nature of the
stock dividend transaction should not govern its account-
ing treatment.l
Mr. Edward B. Wilcox, past president of the AICPA,
and a member of the 1952-1953 Committee on Accounting
Procedure of the AICPA that wrote Chapter 7, Section B,
of Bulletin 43 dissented from the entire pronouncement.
In an article in The Journal of Accountangy, Mr. Wilcox
describes at length his reasons for dissenting. In
criticizing the committee's recommendation of the use of
market value, he said:
It is presumed that the recipients will believe
that they have received the fair value of any stock
dividends which are relatively small or are fre-
quently recurring, except in the case of closely
held companies whose shareholders are supposed to
know better. We seem here to be imposing restric-
tions on an issuing company to protect stockholders
from misleading inferences if they believe what we
tell them they must not believe. Many people rec-

ognize this inconsistency, and a few even think
that something ought to be done about it.

 

lHunter, op. cit., pp. 543-44.

29

If stock dividends are not income to the recipient,
then any restrictions on the issuing company designed
to prevent a misleading inference by a shareholder
who thinks they are, are obviously inconsistent.
They are worse than inconsistent because they
encourage him in his fallacious belief, thus creating
more confusion than they avoid. The shareholder who,
in spite of official pronouncements that stock divi-
dends are not income, nevertheless thinks they are,
but will be saved from the consequences of his error
by a difference in the amount charged to earned sur-
plus by the issuer, is indeed in a remarkable state
of simultaneous ignorance and sophistication.

The recognition of market value in the accounts of
the corporation is contrary to the traditional approach
of the accountant. The accounting profession has been
very reluctant, through the years, to permit the use of
market value in the accounts, even where arguments have
been very strong in its behalf. This does not mean to
say that market value positively has no place in the
accounting system, but it is to suggest that there are
probably better places for it to be used than in the area
of stock dividend recording.

Mr. Walter L. Schaffer defended the position taken
by the committee in regards to the inconsistency in the
recording of stock dividends by the issuer and the recom-
mended viewpoint of the recipient. Mr. Schaffer said:

The committee was aware in 1952, . . . that

solely as a matter of theory the positions taken

with respect to the recipient and to the issuer
are inconsistent and that the accounting procedure

 

1Edward E. Wilcox, "Accounting for Stock Divi-
dends: A Dissent from Current Recommended Practice,"
The Journal of Accountancy, CXVI (August, 1953), 176,
179-80.

30

required of the issuer is in the nature of a pro-
tective device. It was the consensus of the com-
mittee, however, that this procedure had long since
amply demonstrated its soundness and usefulness and,
indeed, had achieved such general acceptance as to
preclude any change with respect thereto on the
part of the committee.1
For the committee to admit that an inconsistency
exists and to continue it under the argument that it
"had achieved such general acceptance as to preclude any
change" is an evasion of responsibility. The passage of
time does not correct an error. There is always room for
change if it is for the better. Because in 1952 the
doubtful procedure had existed for 11 years, was hardly
a reason for its continued existence. Today, in 1963,
it has been in existence for an additional 11 years, or
a total of 22 years, which one could presume to be an
even sounder reason for continuing without a change or
correction.
Two dissenting members of the Committee on Account-
ing Procedure which issued the revised bulletin,
Frank S. Calkins and Perry Mason, disapproved the part of
the bulletin dealing with the issuer. Their dissent was
based upon the inconsistency that they saw in this sec-
tion:
. . . part two [referring to the issuer] is
inconsistent therewith in that the former [part

one, dealing with the recipient] concludes that
a stock dividend is not income to the recipient

 

lSchaffer, op. cit., p. 145.

31
while the latter [part two, dealing with the issuer]
suggests accounting procedures by the issuer based
on the assumption that the shareholder may think
otherwise. They believe it is inappropriate for
the corporate entity to base its accounting on
considerations of possible shareholder reactions.l

William A. Paton and Robert L. Dixon, in their
textbook Essentials of Accounting, do not find the use of
market value "particularly objectionable;" neither do
they think that it has any logical basis.

Underlying the capitalization process is the con-
cept of a stockholders' equity consisting of two
main sections, (1) capital and (2) accumulated
earnings. And the act of capitalization consists
of making a transfer from the second section to
the first. Accordingly there is no rhyme or reason
in using a market price per share, representing the
current value of the total equity per share, includ-
ing both capital and invested earnings, in effecting
a transfer from one section to the other.

A review was made of 24 current accounting text-
books. Of the 16 textbooks that discussed particular
methods, 15 described the use of fair market value. How-
ever, seven of these 15 also included discussion of other

transfer value methods. (See Table 1.)
Other proposed transfer values
Par or stated value

Probably the oldest and best established transfer

 

lAccountingResearch Bulletin No. 43, op. cit.,
p. 54.

2William A. Paton and Robert L. Dixon, Essentials

of Accounting (New York: The Macmillan Company, 1958),
p. 665.

 

32
value is par value, or stated value in the case of no
par stock. Professor Paton went on record for this
method in 1929.1 Many state statutes require its use
today. (See Chapter III.)

Although the AICPA does not endorse this method,
it does get considerable attention in accounting text-
books. Of the 16 reviewed textbooks which discussed
particular methods, five described the use of par or
stated value. (See Table 1.)

Mr. C. Austin Barker, writing in The Analysts Jour-

 

nal, is strongly critical of the use of fair market value
and in its place suggests the use of par or stated value

of the shares issued.2
Average paid-in value

The use of a transfer value that would take into
consideration and maintain the average paid-in value3
has received considerable support through the years.

Bulletin 11, the predecessor to the current pronounce-

ment of the AICPA, mentions this method as a minimum.

 

1William A. Paton, "The Dividend Code," The
Accounting Review, IV (December, 1929), 220.

2Barker, op. cit., p. 70.

3Average paid-in value is computed by dividing
the number of common shares outstanding into the total of
the capital stock account and the paid-in surplus account;
the resulting per share value reflects the average
consideration received for the outstanding shares when
originally issued.

33
As is noted later in this chapter, it too calls for the
use of fair market value, if the latter is substantially
larger than the paid-in value.
Mr. Hunter, in a letter to The Journal of Account-
‘gpgy, critical of the AICPA position regarding market

value, said:

It is my belief that the dividend shares should
be capitalized at an amount equal per share to the
capital stock and capital surplus per share before
the dividend. Action by the board should not be
permitted to alter permanent capital assignable
to shares outstanding.1

On April 30, 1930, the New York Stock Exchange
issued a public announcement recommending the use of
average paid-in value as a minimum transfer value.
Shortly after this announcement, Mr. J. M. B. Hoxey, an
executive of the New York Stock Exchange, addressed the
annual meeting of the American Institute of [Certified
Public] Accountants in Colorado Springs, Colorado,
indicating the reasoning of the Exchange. He stated:

. . . the minimum measure of this proper charge
against earnings or earned surplus appears clearly
to be the sum of the theretofore capital and capital
surplus per share, for each share issued as a divi-
dend. This sum purports to represent the considera-
tion actually received for or represented by the
stock, exclusive of its equity in true undivided
earnings and, unless at least this minimum is
charged, the true capital per share is diluted by
the stock dividend, whether or not the increment in
earned surplus is sufficient to offset such dilution.
If less than this amount is charged the amount remain-
ing in earned surplus will be fictitiously large and
may thereafter be used for duplicate payments of

1Hunter, op. cit., p. 544.

34

dividends, from the same earnings, either in stock
or in cash.

This criterion of the proper charge to be made
applies with as much force in the case of par value
stocks as in the case of no-par value stocks.

Professor William A. Paton, in his textbook Advanced

Accounting, published in 1941, recommends the use of par
value in the case of par value stock, but in the case of
no-par stock recommends the use of average paid-in value.
He argues that stated value is often a nominal figure
much less than total paid-in value and that the latter is
the true measure of capital.2

In a later textbook, published in 1958, Paton and

co-author Dixon discuss these two methods, along with
the market value method. As indicated earlier, they
see no advantage in the latter method.3

The paid-in value method was found in five of the

sixteen textbooks that contained discussion of transfer
values. Of these five, only one textbook described this
method exclusively; the other four included it along with

descriptions of the fair market value method. (See

Table l.)

 

1J. M. B. Hoxey, "Accounting for Investors,"
The Journal of Accountancy, L (October, 1930), 267-68.

2William A. Paton, Advanced Accounting (New York:
The Macmillan Company, 1941), pp. 578-79.

3Paton and Dixon, op. cit., pp. 664-65.

35

Other Criticisms of AICPA Position

Inconsistency in allowing dif-
ferent treatment for closely-
held corporations

The exemption of closely-held corporations from
the capitalization provisions for the issuance of stock
dividends, has been criticized. George 0. May con-
sidered the validity of the exemption questionable.l

Mr. Walter L. Schaffer explains this apparent
inconsistency as follows:

. . . it is to be presumed that the intimate knowl-
edge of such corporations' affairs possessed by their
shareholders would preclude the implications and
possible constructions considered likely in other
instances.

Mr. Wilcox, a member of the committee that issued
Chapter 7, Section B, of Bulletin 43, and dissenter to
its entire contents, was highly critical of the provision
exempting closely-held companies:

Their shareholders are presumed to have such inti-
mate knowledge of the affairs of their corporations
that they will reach no erroneous conclusion. The
criterion for exemption from the prescribed capital-
ization of surplus in excess of legal requirements
seems to be shareholder knowledge of corporate
affairs. It follows that there is nothing basically
wrong with distributions, the fair value of which
may exceed in aggregate the available earned sur-
plus of the issuing company. This is only wrong

 

1George 0. May, "Stock Dividends and Concepts of
Income," The Journal of Accountancy, CXVI (October,
1953), 429. 11

2Schaffer, op. cit., p. 148.

36

when the shareholders lack intimate knowledge

of the corporation's affairs. Just what this inti-
mate knowledge is, that cannot be obtained from
published financial statements, has not been
explained, but the shareholders who lack it are
being protected from something by an impairment of
the earned surplus of their companies otherwise
available for dividends. This discrimination
against them, for their own good of course, is
somewhat analogous to being taken into protective
custody.

Whatever this intimate knowledge may be, it is
imputed to shareholders in closely held companies.
I suppose that subsidiaries come within this clas-
sification. I imagine that corporate shareholders
with competent accountants in their organizations,
and particularly holding companies and investment
trusts, would have adequate and perhaps even inti-
mate knowledge. But unless a corporation is owned
one hundred per cent by its parent, or management,
or something like an investment trust, it will have
some shareholders who are possessed of this elusive
thing called intimate knowledge and some who are
not. Yet each corporation must treat all of its
shareholders alike. It is difficult to imagine
what a minority shareholder in a subsidiary, who
is also a shareholder of its parent, would think
if the parent's stock dividend was recorded at
fair value while the subsidiary's was not.
Attempts at partial guessing about shareholders'
thoughts confuse not only the shareholders but
also the perpetrators of the guessing.1

Erroneous assumption regard-
ing market price reaction

The recommended fair value method of Bulletin 43

is based upon the assumption that the stock market price

does not adjust itself downward to allow for the addi-

tional shares distributed. Several studies have been

made regarding market reaction to stock dividends.

 

lWilcox, op. cit., pp. 180-81.

37
While results are not entirely conclusive, the evidence
strongly indicates that the stock market does react by
adjusting price in direct relationship to the increased
shares on the market. This subject is pursued at length
in Chapter IV. It appears that the AICPA, while attempt-
ing to adjust to actual conditions, has placed much

faith in an assumption that has little validity.
Predecessors to Bulletin 43, Chapter 7L Section B
Accounting Research Bulletin No. 11

The first pronouncement of the AICPA concerning
stock dividends was Accounting Research Bulletin No. 111
issued in September, 1941, by the Committee on Account-
ing Procedure. It was the result of extensive study
during a period that had seen reduced stock dividend use
and abuse, both of which had been more widespread prior
to the depression.2 Its provisions were somewhat differ-

ent from Bulletin 43. Highlights of Bulletin 11 and

 

comparison with Bulletin 43 are presented below:

 

1. Bulletin 11 indicated that the stockholder has

 

 

l"Corporate Accounting for Ordinary Stock Divi-
dends: Accounting Research Bulletin No. 11," The
Journal of Accountancy, LXXII (September, 19415, 252-57.

2George 0. May, "Long Term Liabilities and Capital
Stock," Contemporary Accountigg: A Refresher Course for
Public Accountants, ed. Thomas W. LelandI(New York:
American Institute of Accountants, 1945), p. 8.

38
no income when he receives a stock dividend but suggested
that perhaps this interpretation may require modifica-
tion in some cases. Bulletin 43 allows no exception.

2. Bulletin 11 defined stock dividends and stock
split-ups in the traditional manner, not as in Bulletin 43
where the distinction is by size rather than accounting
entry.

3. Bulletin 11 contained requirements for disclo-
sure of information to the stockholder concerning stock
distributions. These requirements were eliminated in
Bulletin 43.

4. Bulletin 11 contained a stipulation which does
not appear in Bulletin 43. Bulletin 11 stated that
"proper corporate policy requires that in the case of
regularly recurring stock dividends, the amount of earned
surplus capitalized should not exceed the amount of cur-
rent income," after deducting any prior cash dividends.
Bulletin 11 did allow "the capitalization of a relatively
large amount of earned surplus," accumulated over a long
period of time with disclosure to the recipient.

5. Bulletin 11 called for the use of average paid-
in value as'a basis for capitalization with the added
stipulation that the directors "should take into consid-
eration a fair market value per share." It further
stipulated that "when such fair market value per share
is substantially in excess" of the paid-in value "they

should fix the number of dividend shares so that the

39
amount charged to earned surplus per share will have
reasonable relationship to such fair market value."
Bulletin 43 does not mention average paid-in value. It
concentrates on "fair value."

6. Bulletin 11 suggested elimination of the term

 

"dividend": "Perhaps the atmosphere would be clarified
if some term other than 'dividend' were used in connec-
tion with the issuance of additional shares to represent
the capitalization of earned surplus." Bulletin 43
makes no such suggestion.

George 0. May, commenting on the work of the
Committee on Accounting Procedure that issued Bulletin

'_1, said:

The committee was concerned with setting a stand-
ard of good financial morality and practice, and
in this it succeeded. If in doing so, it went
beyond the narrow limits of accounting procedure,
this departure has been more than justified by
results.

The committee worked closely with the Committee
on Cooperation with Stock Exchanges, the New York
Stock Exchange, and the SEC. These bodies have now
established procedures based on the bulletin, which
are an effective safeguard against the abuses that
grew out of the declaration of periodical stock
dividends in the late 1920's.1

The requirement that the market value of a stock
dividend should not exceed current earnings of a corpo-
ration probably dates back to a report, issued in 1929,
by the chairman of the Industrial Securities Committee

of the Investment Bankers Association of America.

 

1May, The Journal of Accountancy, CXVI, 428-29.

40

Issued at a time when interest in stock dividends was
rising, the report dealt at length with the subject of
stock dividends, and, concerning earnings, specifically
said:

Current, periodic stock dividends certainly
should not be declared by a corporation unless
the earnings fully justify such dividends. As
long as the investing public regards such divi-
dends as adding to the value of common stockhold-
ings, no such dividend should be declared unless
there is a real basis for believing that there is
this increase in value.1

Regarding the elimination in the revised bulletin,
of the requirement that a stock dividend be less than
the current income,2 Walter Schaffer, a participant in
the revision, explains as follows:

. . . the committee felt that it should not pre-
sume to lay down, under the guise of accounting
procedures, directives to management as to whether
or not, and when, the latter might declare a stock
dividend, and that having stated the need for a
charge to earned surplus and the manner of deter-
mining the amount thereof in the event of such a
dividend, the committee had fulfilled all respon-
sibilities that it might rightly assume.

Mr. Schaffer also explained the omission regarding
disclosure information to shareholders for much the same

reason. He said:

 

fiv—

1"Report of Industrial Securities Committee--
Discussion of Common Stocks and Stock Dividends," [The
Commercial and] Financial Chronicle, November 2, 1929,
p. 2755. I

2This problem of the relationship between current
earnings and the size of a stock dividend is further
discussed in Chapter III.

3Schaffer, op. cit., p. 149.

41

This omission is not to be taken as implying that
reconsideration had led to any disagreement as to
the desirability of the shareholders' receiving
such information. Rather, it was prompted by

the thought that the committee's pronouncement
should be confined to matters of account keeping
and financial-statement presentation.l

Regarding the omission of disclosure of information
called for in the original bulletin, Mr. Wilcox, a parti-
cipant in the revision, had this to say:

With all its faults, the bulletin on stock dividends
issued by the committee in September, 1941, now
superseded, called for this information. It said
that the issuing company should inform its share-
holders of the amount capitalized per share, the
aggregate amount thereof, the accounts charged or
credited, and the percentage by which the interest,
which the shareholder had in the corporation before
the issuance of the stock dividend, will be reduced
if he should decide to dispose of his dividend
shares. The amount capitalized per share, and the
accounts charged, tell more than could possibly be
reliably inferred from capitalization of amounts

in excess of legal requirements which nobody ever
contributed to capital. Even more useful is the
knowledge of the effect of a sale of dividend
shares on the percentage reduction in the stock-
holder's interest in the company. A shareholder
may, and many do, wish to sell dividend shares to
realize income and maintain investment. . . .

Any inferences drawn from the fact that a stock
dividend is recorded at value are apt to be more
misleading than helpful. Yet the latest committee
pronouncement omits any requirement for the dis-
closure of this information.

Professor John T. Burke also criticized the

omission, from Bulletin 43, of the requirements for infor-

 

mation and disclosure previously contained in Bulletin 11:

 

llbid.

2Wilcox, op. cit., p. 180.

42

Stockholders should be provided with the infor-
mation specified in Accounting Research Bulletin
No. 11, namely, the amount capitalized, the accounts
affected, and the extent to which the recipients'
proportionate interest will be diluted if the new
shares are sold and, therefore, it should continue
to be required of the declaring corporation to
furnish the information.

Accounting Research Bulletin No. 11 (Revised)

Accounting Research Bulletin No. 11 was revised in
January, 1953. It was published, without change, as

Chapter 7, Section B, of Bulletin 43 in June, 1953.

 

Distribution of Shares Held as An Investment

Occasionally corporations distribute to their
shareholders certificates of stock previously held as an
investment, that is, stock of a company other than the
distributing company. This type of distribution presents
a definitional problem. Accountingwise there is no prob-
lem. The debit, usually at market value, is to Retained
Earnings and the credit is to the investment account.
There is not much argument about the nature of the divi-
dend and, in fact, it is considered very similar to a
cash dividend, in the sense that a distribution of an
asset has been made.

Not everyone agrees as to the term to be applied

 

1John T. Burke, "Stock Dividends--Suggestions for
Clarification," The Accounting Review, XXXVII (April,
1962), 286. '

43
to this type of distribution. Often it is considered a
stock dividend, because distribution is being made in
stock. Moody's and Standard and Poor's Corporation both
list this type of distribution in their stock dividend
lists. Newspapers and financial periodicals often refer
to this type of distribution as a stock dividend.

Bulletin 11 excluded "distribution of shares in

 

another corporation theretofore held as an investment"
from the term "stock dividend." Bulletin 43 excluded
this type of distribution from its bulletin but did not
exclude it specifically from the term "stock dividend."
Thus the AICPA appears to have changed its mind concern-
ing the inclusion of this type of distribution as a
stock dividend.

Accounting text writers generally do not consider
this type of distribution as a stock dividend. It is
usually referred to as a "property dividend."1 Pro-
fessor Robert N. Anthony refers to this type of distri-

bution as a "spin off,"2 while Professor Sidney I. Simon

 

1Robert E. Seiler, Elementary Accounting: Theoryi
Techniquei and Applications (Columbus, Ohio: Charles E.
Merrill Books, Inc., 1963), p. 298; Robert R. Milroy and
Robert E. Walden, Accounting Theory and Practice: Inter-
mediate (Cambridge, Mass.: Houghton Mifflin Company,
1960), p. 534; Wilbert E. Karrenbrock and Harry Simons,
Intermediate Accounting (3rd ed.; Cincinnati: South-
Western Publishing Company, 1958), p. 699.

2Robert N. Anthony, Management Accounting: Text
and Cases (Homewood, I11.: Richard D. Irwin, Inc., 1960),
p. 187.

 

44

classifies it as a "dividend in kind" and reserves the
term "spin off" for a similar distribution that results
in the tax-free distribution of all shares of a subsid-
iary corporation, under Section 355 of the Internal
Revenue Code of 1954.1

Although, on the surface, they appear to be quite
similar and it is understandable why the public would be
confused, there is a great difference between a stock
dividend and a distribution of stock held as an invest-
ment. The latter certainly is a dividend in the true
sense of the word, similar to that of a cash dividend,

and under no condition should be considered to be a

stock dividend.

Summary

In spite of considerable study and official pro-
nouncements that date back to 1941, problems for the
accounting for the issuance of stock dividends are far
from solved. Discussion in this chapter has pointed out
some of the weaknesses and areas of controversy in the
AICPA's Bulletin 43, regarding stock dividends.

A major problem area is the recommended use of

fair value in determining the amount of transfer from

 

lSidney I. Simons, "Spin-Offs vs. Dividends in
Kind," The Accounting Review, XXXV (January, 1960),
81, 83.

45

Retained Earnings to permanent capital. The discussion
above shows that the Bulletin's pronouncements are based
on faulty assumptions, are inconsistent, and tend to rein-
force stockholders' misunderstanding rather than clearing
up the issue.

It is apparent that there is no standard thinking
on the subject, that there has been a shifting of ideas
through the years, and that substantial progress is yet

to be made in this area.

CHAPTER III

REGULATORY ASPECTS OF STOCK DIVIDENDS

The distribution of stock dividends is regulated
by various state and federal laws, and securities
exchanges. This chapter discusses some of the more

important regulatory aspects of stock dividends.

State Corporation Laws

Every state has corporation statutes that affect
corporate activity. Stock dividends are usually men-
tioned in the statutes with considerable variation
existing among the various state provisions. Table 2
provides a summary view of the highlights of the stat-
utes concerning stock dividends of all the states and
the District of Columbia. Because of the variety and
complexity of the state statutes, the table is not com-
plete in all respects. Appendix C contains a detailed
description of the state statutes insofar as they affect
stock dividends.

Nine states have no provision for stock dividends
while eight others specify that stock distributions are
allowed but indicate no other provisions.

46

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49

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meCHHCOUIIN mqm<e

50

Required transfer value methods vary among the
states, with some states failing to mention any. The
method mentioned most often is the capitalization of par
value shares at par value. Nine of the 19 states stipu-
lating this method require it as a minimum and permit
additional transfers.

Sources of the amount to be transferred that are
permitted specifically in state statutes vary consider-
ably. Some states limit the source to accumulated earn-
ings while other states allow such sources as asset
revaluation surplus and paid-in surplus.

It is evident that pure compliance with state law
regarding the issuance of stock dividends does not neces-
sarily result in good accounting treatment. Not only is
there considerable variation among state requirements,
but many of the state requirements violate generally

accepted accounting principles.

Model Business Corporation Act

The joint efforts of the American Bar Association
and the American Bar Foundation have produced the Model
Business Corporation Act. As the name implies, it is a
model for individual states to follow in the enactment
of state corporate statutes. The first draft of this

act was reported in 1946. Since that time several

51
revisions have been published, the latest being in 1960.1

The Model Business Corporation Act contains a sec-
tion devoted to stock dividends. (See Appendix D for the
text of this section.) The following are important pro-
visions of this recommended statute:

1. Stock dividends may be issued out of reacquired
treasury shares and authorized but unissued shares.

2. In the case of par value shares, the minimum
transfer value is par value.

3. In the case of no par value, the board of direc-
tors is to fix the stated value to be used as a transfer
value. This value is to be disclosed to the shareholders
at the time of payment.

4. A distribution of shares without an increase in
the stated capital of the corporation is not to be con-
strued as a stock dividend, but merely a stock split.2

Only a few states have adopted the provisions of
this Model Act. Some of the states have adopted it in
part, deleting or adding their own provisions.3

It is noteworthy that the provisions of the Model
Business Corporation Act regarding stock dividends do not

comply with the pronouncements of the American Institute

 

1Committee on Corporate Laws (ed.), Model Business
Corporation Act Annotated, A Research Project of the
American Bar Foundation, Vol. I (3 vols.; St. Paul, Minn.:
West Publishing Company, 1960), p. v.

21bid., III, 28-29. 3Ibid., I, 697.

52
of Certified Public Accountants. Market value as a trans-
fer value is not mentioned in the Act, and distributions
without transfers to permanent capital are not recognized

as stock dividends.
Securities and Exchange Commission

Regulation S-X is the principal accounting regula-
tion of the Securities and Exchange Commission (SEC) in
its administration of the various securities acts under
its jurisdiction. This regulation consists of a number of
articles and rules. Article 11, entitled "Content of
Statements of Surplus," refers to dividends. Although
Article 11 does not specifically prescribe the accounting
for the issuance of stock dividends, the SEC is in agree-
ment with the pronouncements of the American Institute of
Certified Public Accountants, according to Mr. Louis H.
Rappaport, partner of Lybrand, Ross Brothers and Mont-
gomery, and specialist in SEC matters. As in Bulletin 43,
fair value is required in the capitalization of retained

earnings.1
New York Stock Exchange

There are approximately 1,500 stocks listed on the

 

lLouis H. Rappaport, SEC Accounting Practice and
Procedure (revised printing; New York: The Ronald Press
Company, 1959), pp. 235, 237, 310, 312.

53

New York Stock Exchange (NYSE). The NYSE dominates the
exchange business. In 1960 it handled nearly 84 per cent
of the dollar volume on all U. S. stock exchanges. These
facts point up the importance of the NYSE in the Ameri-
can securities market today. Because of its size, the
NYSE influences other securities exchanges to a great
extent.

The New York Stock Exchange has adopted policies
and rules in accordance with the pronouncements of the
AICPA concerning stock dividends. Current rules of the

Exchange as embodied in the Company Manual, parallel the

 

requirements as contained in Accounting Research Bul-
letin No. 43, Chapter 7, Section B.

The Exchange requires the capitalization at fair
value for all stock distributions of less than 25 per
cent. This capitalization policy does not apply to
distributions representing 100 per cent or more.

As to distributions of 25% or more, but less than
100%, the Exchange will require capitalization at
fair value only when, in the opinion of the
Exchange, such distributions assume the character
of stock dividends through repetition under cir-
cumstances not consistent with the true intent
and purpose of stock split-ups.l

Unlike Bulletin 43, the NYSE policy calls for

specific disclosure information to the stockholder.

A notice should be sent to stockholders with the

 

1New York Stock Exchange Company Manual (New York:
The New York Stock Exchange), p. A-23S.

54

distribution advising them of the amount capi-

talized per share, the aggregate amount thereof,

the relation of such aggregate amount to current

undistributed earnings, the account or accounts

to which such aggregate has been charged and

credited, the reason for paying a stock dividend

and that sale of the dividend shares would reduce

their proportionate equity in the company.1

The influence of the AICPA's Bulletin 43, Chapter

7, Section B, can be seen in the above requirements, and
in the specific reference that is made in the Exchange
policy to pronouncements of the AICPA regarding stock

dividends.
Relationship to Current Earnings

The New York Stock Exchange no longer requires
that the aggregate fair market value of the stock distri-
bution be equal to or less than current undistributed
earnings. In 1955 this requirement was lifted. Prior to
this, the policy of the Exchange, made public February 11,
1953, indicated that the Exchange "will consider the rela-
tionship between the aggregate fair value of the shares
so to be distributed and the amount of the company's
earnings."

The policy statement of that date continued as
follows:

In considering the relation of the aggregate

fair value of the additional shares to be distri-

buted to the company's earnings . . . the Exchange
will expect that the undistributed earnings of the

 

lIbido, A-235, A-2360

55

period between successive distributions be suffi-
cient to cover such aggregate fair value. Excep-
tion to this phase of the policy may be made in
the case where two or more such distributions
occur during the same fiscal period and the undis-
tributed earnings of such fiscal period are suffi-
cient to cover the aggregate value of all such
distributions occurring during such fiscal period
although the undistributed earnings of the period
between two successive distributions may not be
sufficient to cover one distribution or the other.
Otherwise, while an occasion may arise when the
aggregate fair value of shares issued in succes-
sive distributions may exceed the undistributed
earnings between such successive distributions,
the Exchange is not prepared to make exceptions

to the above-stated policy except under the most
unusual circumstances and on a non-recurring
basis.

Barron's discussed the change in Exchange policy

as follows:

N. Y. S. E. officials have come around to the
view that the relationship between stock dividends
and current earnings should be left up to the dis-
cretion of management. Hence it will no longer
object when stock dividends, plus cash dividends,
exceed profits. The changed attitude of the
Exchange reflects a revision in the official views
of the American Institute of Accountants on this
subject. On matters such as these, Exchange policy
is often based on bulletins issued by the Institute.

This rule change was accompanied by a disclosure
requirement similar to the one quoted previously and now
in force.

Exchange officials hope that by mailing this
type of information to stockholders, some of the

 

1"New York Stock Exchange Issues New Policy on
Accounting for Stock Dividends," The Journal of Account-
ancy, CXV (May, 1953), 604.

2Walter Mintz, "Rules on Stock Dividends Liber-
alized by Exchange," Barron's, November 14, 1955, p. 39.

56
prevailing misapprehensions about the nature of
stock dividends will be dispelled. It is felt that
a great many investors tend to equate stock divi-
dends with cash dividends without realizing that
any stock distribution reduces the proportion of
the total equity which each share represents.
Indeed, it was partly because of the fear of such
confusion on the part of shareholders, that the
Stock Exchange formerly refused to permit payment
of stock dividends which were excessively large in
relation to earnings.1

In 1953, the International Business Machines Corpo-
ration, because of the New York Stock Exchange policy
then in force, was compelled to reduce its annual stock
dividend to 2-1/2 per cent. The company had in the pre-
vious four years issued a five per cent stock dividend
and had announced the same distribution for 1953. New
York Stock Exchange officials objected to payment of the
five per cent stock dividend because, when valued at cur-
rent market price, it would have a value of about $12.50
per share. Added to the $4 cash dividend, making a total
of $16.50 per share, the total payout exceeded the com-
pany's 1953 earnings of $10.67 per share. I. B. M. was
forced to reduce the dividend to 2-1/2 per cent.

Although the I. B. M. case received the most public-
ity, it was not the only company involved in this old
rule of the Exchange that kept market value of stock divi-
dends in line with current earnings.

The New York Stock Exchange requirements regarding

the use of market value and the limitation of current

 

lIbid.

57

earnings date back to a revised policy pronouncement of
October 14, 1943, issued to comply with the original
Accounting Research Bulletin No. 11. This revised
policy modified previous policy announcements of 1929
and 1930.

The NYSE policy announcements of 1930 called for
the capitalization of a stock dividend at average paid-
in value.

In the accounting for Stock Dividends upon the
books of the issuing Company, whether for stock
with par value or without par value, Capital and
Capital Surplus should be regarded together as the
consideration, other than earnings, represented by
the stock. The sum per share of these two accounts
is the minimum amount, per share to be issued as a
Stock Dividend, which should be charged against
Earnings or Earned Surplus in order that such divi-
dend may be termed a true earned Stock Dividend
properly accounted for and in order that Earned
Surplus may not include a fictitious amount avail-
able for further dividends without further earnings.

In cases where there exist substantial uncapital-
ized assets, tangible or intangible, the amount of
the charge against Earnings or Earned Surplus should
be larger than this minimum amount.

The Exchange will not decline to list, for th
present at least, ordinary periodical Stock Divi-
dends insufficiently charged against Earnings or
Earned Surplus, providing proper disclosure is
made of the nature of such dividends. . . .

Other Stock Exchanges

The American Exchange, the only other national

exchange, is the second largest in the United States. Of

 

l"New Rulings of New York Stock Exchange on Stock
Dividends--Issuance of Latter with Insufficient Charge
Regarded as Misleading," LThe Commercial and] Financial
Chronicle, May 3, 1930, p. 3097.

58
the 14 regional exchanges in the U. S., the Midwest
Exchange is the largest. These 15 exchanges exert very
little influence on stock dividends.

In 1960 the American Exchange accounted for 9.2 per
cent, and the Midwest Exchange for 2.7 per cent of the
dollar volume on all U. S. Exchanges. All other exchanges
accounted for 4.1 per cent of the total volume.1

The American and the Midwest Stock Exchanges have
not been active in establishing regulations concerning
the issuance of stock dividends. They have made no
significant alterations or additions to the provisions
of the sac.2

Any attempt at stock dividend regulation by any of
the exchanges, other than the New York Stock Exchange
and the American Exchange, would be superfluous because
of the concept of dual listing which involves the simul-
taneous listing of stocks on two or more exchanges.
Dual-listed stocks of the New York Stock Exchange are
already covered by existing NYSE rules.

At present, stocks traded solely on regional
exchanges are relatively few in number and many are

relatively inactive. Because of the decrease in the

 

lTheIWall Street Journal (Eastern ed.), November 20,
1961, p. 18.

2M. Richard Sussman, The Stock Dividend ("Michigan
Business Studies," Vol. XV, No. 5; Ann Arbor, Mich.:
The University of Michigan, 1962), p. 44.

59

number of solely regionally traded stocks in recent years,
the regional exchanges have expanded their trading of
stocks also traded on other exchanges, usually the New York
Stock Exchange. Dual listing business has become the
most important business of the major regional exchanges.
Ninety-three per cent of the dollar volume of trading on
the seven major regional exchanges in 1961 was in securi-
ties also traded on a national exchange, usually the
New York Stock Exchange.1

Because of the large amount of New York Stock
Exchange-listed business, the standards of the NYSE tend

to prevail on the regional exchanges.
Other Regulatory Agencies

Other government agencies, both federal and state,
have the authority to influence the issuance of stock
dividends. Some of the federal agencies include the
Interstate Commerce Commission, the Comptroller of the
Currency, and the Federal Trade Commission. Similar
authority, on the state level, is exercised by agencies
that regulate such industries as transportation, util-

ities, and banking.

 

1A Report to the U. S. Congress in 1963, Prepared
by the Special Study of Securities Markets of the Securi-
ties and Exchange Commission, Securities Regulation Ser-
vice, Vol. II (2 vols.; Englewood Cliffs, N. J.: Prentice-
Hall, Inc.), pp. 34108-109.

60

Generally this influence lies in the requirement
that agency approval be given for the issuance of stock
dividends. With the exception of the Comptroller of the
Currency, all the other federal and state agencies have
very little effect. This is due to the fact that a rela-
tively small number of companies come under the authority
of such agencies, and very few of these companies are

inclined to use the stock dividend device.

 

CHAPTER IV
SOME FINANCIAL ASPECTS OF STOCK DIVIDENDS
Criticism of Terminology

It is widespread practice to describe the distri-
bution of a stock dividend as "paying" a stock dividend.
The use of the words "paying" and "dividend" is incor-

rect and is the source of considerable confusion.
A Stock Dividend Is Not A Dividend

Professor William Paton in a recent article summed
up the problem well when he said that stock dividends
are "of course nothing but a split to which the term
'dividend' is erroneously attached."l Paton and Dixon
have described the term "stock dividend" as "one of the
most indefensible of financial usages" and "undoubtedly
largely reSponsible for the prevailing misunderstanding
of this phenomenon."2

In spite of considerable well-founded criticism

 

1William A. Paton, "The Cash-Flow Illusion," The
Accounting Review, XXXVIII (April, 1963), 247.

2Paton and Dixon, op. cit., p. 651.

61

 

62
over a period of many years the term has survived and has
continued to confuse the issues surrounding stock divi-
dends. Mr. Walter J. Matherly writing in 1923 in 222
Journal of Accountancy said:

To begin with, stock dividends are not real
dividends at all. Indeed they are just the oppo-
site of dividends, as the supreme court pointed
out in the case of Eisner yp. Macomber. They
merely represent permanent retention of the pro-
fits in the business. They in no way involve a
distribution to the stockholders. The share-
holders' equity is absolutely unchanged.1

 

Another critic of the term "dividend" had this
to say:

This is merely one of a number of instances in
which the terms used in the accountancy profession
are ambiguous or misused.

"Stock dividend" in its current meaning is a
misnomer. . . .

It is in no sense of the word a dividend. . . .

The adoption of the term "stock dividend" was
doubtless a device intended to deceive. The
managers of a corporation with an accumulation of
earnings which had perhaps already been reinvested
in assets of the business, being reluctant to con-
vert these into cash and distribute to the stock-
holders, hit upon the scheme of withholding the
earnings, and at the same time giving to the
stockholders, other pieces of paper representing
their individual share of the profits, as distin-
guished from their original investment, and thus
to silence their clamor. So they gave them paper,
additional receipts for what was already theirs,
and called the paper "dividends.". . .2

 

1Walter J. Matherly, "Proposed Taxation of Stock
Dividends," The Journal of Accountancy, XXXVI (August,
1923), 98.

2Ernest s. Rastall, Letter to the Editor: "Mis-
nomer Begets Misunderstanding," The Journal of Account-
ancy, XLIX (May, 1930), 379.

 

63
The late George 0. May, a respected contributor to
accounting thought, in reviewing AICPA pronouncements on
stock dividends, "questioned whether the word 'dividend,'
with all its accumulated implications, should be used to
describe any such distribution."1
Dr. Neil Carothers, Dean Emeritus, School of Busi-
ness Administration, Lehigh University, and consultant
to a former president of the New York Stock Exchange, has
strongly criticized the use of stock dividends and speci-
fically the term "dividend" used in this type of distri-
bution.
There is nothing mysterious or magical about stock
dividends, except the name, which is incorrect.
Stock "dividends" are not dividends at all. . . .
. . . A stock dividend is merely a split, no
more, no less. . . .2
Not only is a stock dividend not a "dividend,"
but, according to Professors Paton and Dixon, its distri-
bution has the opposite effect of a dividend:
Through this action the board of directors serves
notice on the investors that a portion of the
accumulated earnings has been permanently removed
from the area legally subject to dividend appro-
priation. It is somewhat ironic, in view of this
fact, to describe the issue of the additional
shares as a "distribution" of earnings; the deci-

sion to retain earnings is just the opposite of a
decision to distribute income funds.

 

1May, The Journal of Accountancy, CXVI, 429.

2Neil Carothers, "The Stock Dividend Mumpsimus,"
The Commercial and Financial Chronicle, December 10,
1953, p. 2255.

3Paton and Dixon, op. cit., p. 666.

64
Professor John T. Burke criticizes the term "divi-
dend" used in a stock distribution and suggests an
improvement:

The term "dividend" is used to describe too many
fundamentally different types of events and the
definition of a dividend as a pro rata distribution
is so broad that it limits its usefulness in
accounting. Its continued use with little or no
criticism being directed towards its meaning,
connotations, and limitations detracts from the
precise classification of items that accountants
strive for in published reports. . . .

It is obvious that a better understanding of the
term "dividends" is necessary. Two separate courses
of action appear to be available. The accounting
profession can continue to use the broad defini-
tion and attempt to educate the public to the
various meanings and interpretations of the term or
the profession can adopt the narrower definition for
the term "dividend" and introduce new terminology
for the other corporate actions which do not fall
within the narrower definitions. . . . improved
terminology that will add preciseness to accounting
should be adopted. Therefore, it is proposed that
the term "dividend" be limited to describe only
pro rata asset distributions to stockholders of
declarations from current or retained earnings and
to introduce new terminology for the term "divi-
dend" in other areas of current usage.1

Stock Dividends Are Not "Paid"

A natural consequence of the erroneous use of the
word "dividend" was to describe the distribution as being
"paid." The practice is well established. One need only
look in any financial periodical where reports of divi-
dends are found and he will find stock dividends being

discussed as "paid" along with cash dividends. The use

 

lBurke, op. cit., pp. 283-85.

65

of the words "dividend" and "paid" must be convincing
evidence to the uninformed investor that he is getting
something akin to a cash dividend.

The following comment, made by a financial exec-
utive, illustrates the erroneous thinking that can result
when stock dividends are improperly described as being
"paid."

Now let's talk about stock dividends. Anything
paid to a stockholder whether it be in cash, in
stocks, in apricots, or orange juice is a divi-
dend.l

A more correct, appropriate, and honest word
would be "distribute" in place of "pay," for that is
what is occurring; additional certificates are being
distributed to existing stockholders, nothing is being
"paid."2

Are Stock Dividends Income
to the Recipient?

From the discussion in Chapter II regarding the
accounting for the issuance of stock dividends it is
evident that the stockholder gets nothing that he did not

have before, except more pieces of paper to evidence the

 

1Paul E. Conrads, Letter to the Editor: "Midwest-
ern Dealer Defends Stock Split-up and Stock Dividends,"
The Financial and Commercial Chronicle, January 14,
1954, p. 165.

2In order to avoid confusion, the well-established
term "stock dividend" is used throughout this disserta-
tion. No attempt is made to substitute a more correct
term. However, "distribute" is used in the place of

”pay. "

66
same ownership. Nevertheless, there is the possibility
that he may have profited by the stock distribution.
This profit or income would exist if the aggregate
value of his stockholdings after the stock distribution
was greater than before the stock distribution. If this
is the case, there exists the peculiar situation of a
corporation providing income to the stockholder without
parting with any of its own assets. Certainly under these
circumstances a stock dividend is worthwhile.

Because of the existence in this country of federal
taxation of income, this problem has interested the
Internal Revenue Service and the courts of law. Tax and
legal developments in this area are considered in the
following chapter.

The use of stock dividends appears to be justified
when the stockholder benefits by increased value of his
holdings. A report issued to its members by the Invest-
ment Bankers Association of America in 1929 stated:

It would seem possible to lay this down as a
fundamental with regard to stock dividends: the
total stock outstanding at the end of a dividend
period should be at least as valuable per share as
that outstanding at the beginning. . . . If this
is not the case, the common stock dividends have
created an impression of growth and increase in
value, whereas, as a matter of fact, the divi-

dends have merely been a dilution of the stock-
holdings.l

 

1"Report of Industrial Securities Committee--
Discussion of Common Stocks and Stock Dividends," loc.
cit.

67

Market Reaction to Stock Dividends

Benjamin Graham, an investment expert and finan-
cial writer, is a proponent of the periodical stock
dividend distributed from current income. His argu-
ments in favor of such a distribution are based on the
idea that, after a stock distribution, total market
value of a given shareholder's holding must be greater
than prior to the distribution. In other words, the
stock market does not discount the additional equity
dilution. In this respect, Mr. Graham says:

Actually, of course, a periodic stock dividend is
valued in the market somewhere between nothing at
all and the full equivalent in cash. The overall
effect of a stock-dividend policy--like that of a
cash-dividend or a no-dividend policy--depends
largely on what investors think of it.

Thus Mr. Graham thinks that not always, but at
least sometimes, the stock market as a whole does not
discount the additional shares in the market. Conse-

quently, the additional shares do have value to the

investor who receives them.

Results of market studies

Because of the importance of the question of mar-

ket reaction to a stock distribution, several studies

 

1Benjamin Graham, "The Stock Dividend Defended,"
The Commercial and Financial Chronicle, December 24,
1953, p. 2532.

68

have been made through the years regarding this problem.

Professor Shaw Livermore conducted probably the
earliest study of this type in 1930. It was his conclu-
sion that there is no effect of stock dividends upon
market price and that "as an influence on price of itself,
the stock dividend has no standing."1

A study was made in 1932 to evaluate the market
performance of the stock of the North American Company.
The company had been distributing a regular stock divi-
dend of ten per cent annually from 1923 to the date of

the study.

A comparison of the monthly price movement of
the North American Company, the American Tele-
phone and Telegraph Company, and an average of
utility holding companies shows that during the
rapidly changing market conditions of the past
bull market there was no material variance in
market returns between stock-dividend-paying and
important nonstock-dividend-paying stocks. The
percentage variations . . . are so minor as to
warrant the conclusion that the payment of stock
dividends cannot be considered a factor during
major price movements.

Professor 0. K. Burrell studied all 1947 stock
split-ups of 2-for-l or greater and all stock dividends
of 100 per cent or more. He concluded:

. . . stock dividends and split-ups are neither

positive nor negative influences on stock price
movements after the announcement date. It does

 

lShaw Livermore, "Value of Stock Dividends," The
American Economic Review, XX (December, 1930), 691.

2Seymour N. Siegel, "Stock Dividends," Harvard
Business Review, XI (October, 1932), 81, 85.

69

appear that there is a general tendency for stocks
to rise in the period immediately preceding the
annguncement of a major stock dividend or split-
up.

Joseph C. Bothwell, Jr., conducted a study of the
effect which periodic stock dividends had on the market
prices of seven stocks listed on the New York Stock
Exchange. The study covered a period from December, 1946,
to April, 1948. Bothwell reported:

Examining seven companies which after the war had
paid dividends in stock of less than 10%, without
cash, we found that the market price of the shares
was in fact affected. In good times almost any
action is likely to drive stock price up, while

in bad times it takes very little to drive it down.
Stock dividends appear to cause such movements.
With rising earnings and a bullish market, manage-
ment may expect prices to rise higher than other-
wise; in a period of declining earnings and a bearish
market, or even declining earnings and a favorable
market, prices will probably drop excessively.2

John H. Myers and Loyd Heath set out to determine
the effect of a stock dividend on market price. They
studied the price behavior of the stocks of 21 New York
Stock Exchange-listed companies that distributed stock
dividends at least five of the six years from 1951-1956.
The study covered a period running from six weeks before.

the dividend meeting to one week after the ex-dividend

date. Only stock dividends of ten per cent or less were

 

1O. K. Burrell, "Price Effects of Stock Dividends
and Split-ups," The Commercial and Financial Chronicle,
December 2, 1948, p. 70.

2Joseph C. Bothwell, Jr., "Periodic Stock Divi-
dends," Harvard Business Review, XXVIII (January, 1950),
100.

70
considered. The price of each stock was studied to see
if, after adjustment for dilution, it differed from the
general movement of the price of other stocks in the same
industry. Their conclusion was as follows:

By and large there seems to be a slight price

rise accompanying payment of such dividends, but
this may be due to the other favorable actions about
the companies which do choose to pay these stock
dividends.1

C. A. Barker found in his detailed study on stock
dividend issuing companies of the New York Stock Exchange
that stock dividends have no positive influence on market
prices. He reports:

. . . there appears to be no special price bene-
fit arising from a stock dividend even in those
cases marked by complete regularity or continuity
of dividend distribution. Indeed, all of the price
comparisons indicate that the so-called periodic
(or regular or continuing) stock dividends have no
more effect on real market price gain or loss than
other types of stock dividends; and that the com-
petitive earnings and cash-dividend-paying ability
is what determines the market price performance of
stocks with similar risks.

In no aspect of this stock dividend study have I
been able to find a single measurement approach
that will show any proof that stock dividends, in
and of thegselves, enhance the market price of
the stock.

Professor M. Richard Sussman studied the influence
on market price of stock dividends issued in 1958 by 87

companies listed on the New York Stock Exchange. He

found:

 

1Myers and Heath, op. cit., pp. 756-57.

2C. Austin Barker, "Evaluation of Stock Dividends,"
Harvard Business Review, XXXVI (July-August, 1958), 110-11.

71
The resulting figures produced no typical result.
Stock dividends appeared to have positive influ-
ences in some cases and negative influences in
others. The degree of influence, as well as the
direction, varied widely. If any generalization
can be made from these results, it is that the
over-all tendency of stock dividends is to enhance
slightly the aggregate market value of their reSpec-
tive companies, particularly when the stock divi-
dend issued is relatively small.1
A survey of officials of large corporations issuing
stock dividends revealed that the effect of a stock divi-
dend on the stock market is an important consideration
to them. Replies received from the executives disclosed
that their experiences seemed to indicate to them that
the aggregate value does increase after a stock distri-
bution.2
Inclusion of Stock Dividend
in Computation of Yield
As indicated in Chapter I there is a tendency on
the part of some writers to include the market value of
the distributed stock dividend along with the cash divi-
dend in the computation of the yield.3 Fortunately,
this practice is kept to a minimum. Benjamin Graham is

one distinguished financial writer who feels that stock

dividends should be included in the computation of yield:

 

lSussman, op. cit., p. 100.

2Robert E. Zang and George C. Thompson, "Why Stock
Dividends Are Declared," Taxes--The Tax Magazine, XXVII
(October, 1949), 885.

3Financial World does this regularly in their
articles discussing stock dividends.

72

An important additional area for education and
change of practice lies in the legal, accounting,
and "journalistic" treatment of systematic stock
dividends. The financial community as a whole
must be persuaded to treat stock dividends as the
equivalent of.a specified amount'of cash, pp pp;
extent that they Egg pp denominated py the declar-
ipg cocporation. Thus, . . . if the . . . divi-
dend were specified as being at the annual rate
of $4.30, payable $2 in cash and $2.30 in stock,
then the newspapers and the financial services
should designate the dividend in the same fashion.
The basic difference would be that instead of
calling the rate $2, with a footnote addition
"plus stock"--as they now do--they would call the
rate $4.30 with a footnote addition, "partly in
stock." The dividend yield should be calculated
on the bfsis of $4.30, instead of $2, as at
present.

Clearly the position of Mr. Graham is based upon
the recognition of the receipt of a stock dividend as
income. ~His position has little validity when the stock
dividend device is analyzed from the accounting and finan-
cial viewpoints. Accountingwise the stockholder receives
nothing he did not have before and the corporation parts
with nothing. Both are in the same position as they were
before the distribution. Financially, the stockholder
appears no better off because of the compensating market
reaction to the stock dividend.

Dr. Sussman, having studied market reaction to
stock dividends, recommends in his report that "corpora-

tions cease the practice of describing stock dividends

 

lBenjamin Graham, "Stock Dividends: An Analysis
of Some of the Major Obstacles," Barron's, August 10,
1953, p. 6.

73
as a 'return' on investment. Stock dividends and the

term 'yicld' should not be associated together."l
Motives Underlying Use of Stock Dividends

Generally considered the most important motive or
reason for the use of the stock dividend device is that
of conserving cash, by using the stock dividend as a
substitute for, or an accompaniment to, a cash dividend.
This motive is often openly expressed by corporation
executives when stock dividends are announced by their
companies.2

A survey of corporations regarding dividend policy
indicated that two—thirds of the companies that issue
stock dividends consider them a substitute for cash pay-
ments and one-third as a supplement to cash payments.3

Mr. C. Austin Barker studied all New York Stock
Exchange-listed stock dividend issues of five per cent
or more distributed in common stock during the years 1951
through 1954. The total of such dividends amounted to
224. He found only 34 cases, or 15 per cent of the total

cases studied, where a stock dividend was used to

 

lSussman, op. cit., p. 101.

2See Longines-Wittnauer announcement, The Wall
Street Journal (Midwest ed.), June 11, 1962, p. 18, and
National Bellas Hess, Inc. announcement, The Wall Street
Journal (Midwest ed.), March 12, 1963, p. 20.

3Louis D. Marshall and G. Clark Thompson, "What is
a Sound Dividend Policy?" Business Record, XV (Febru-
ary, 1958), 56.

74
supplement a partial reduction in cash dividends or used
entirely in place of a cash dividend. He concluded that

this percentage was "scarcely large enough to indicate

that cash saving is a major objective of stock dividends.'

Furthermore, Barker found that 190 of the 224
cases resulted in cash dividend increases. In 72 per
cent of the 190 cases the actual cash dividend rate
per share remained unchanged during a subsequent period.
In the remaining 28 per cent, the cash dividend rate
per share did change but resulted in increased dividend
payout. Barker concluded:

It is easy to see, therefore, that in the great
majority (85%) of all cases studied, the saving
of corporate cash by means of a stock dividend
was not an objective in the financial planning of
management.

Dr. Carothers, a non-believer in stock dividends,
has written a strong criticism of the often-expressed
purpose of a stock dividend, that of being a substitute
for a cash dividend. He used as a specific illustration
the case of the Caterpillar Tractor Company. In 1953,
the company had reduced the annual cash dividend from $3
to $2 and had added a four per cent stock dividend.

It is not the purpose here to discuss the action

of the directors in reducing the dividend. It may
have been a praiseworthy action. It may not. What

is criticized here are the issuance of a stock divi—
dend and the suggestion that the stock dividend was

 

lBarker, Harvard Business Review, XXXVI, 100, 108.

21bid., p. 109.

1

75

an offset to the reduction in the dividend and a
source of income for the stockholder.

The directors wrote the stockholders that they
intend to follow the practice, indefinitely, of a
$2 cash dividend with a 4% stock dividend. This
policy, they said, would give the stockholder a
larger "annual income" than he had been receiving.
This is an appalling statement. The owner of 100
shares has his annual income cut from $300 to $208
[$200], but he would receive more "income." How?
By selling off his property in the company.

Here is what the directors should have written:
"Your directors have decided that it is in the
best interest of the Company to reduce the dividend
from $3 to $2 and to invest the saving in permanent
capital. This will reduce the market value of your

stock, but we believe that our action will even-
tually benefit the stockholders. A stock dividend
is merely a dilution of a company's total stock,
which gives each stockholder a larger number of
shares worth exactly the value of his former hold-
ings. If, because of the reduction in your divi-
dends you need additional cash, you can sell some
of your stock. Merely as a matter of convenience
if you wish to sell a small amount, we are issuing
a stock dividend of 4%. You should understand
that if you sell this stock dividend, you are sell-
ing a part of your property in the Company. Since
we believe that our action will benefit the stock-
holders we do not advise you to sell the stock
dividend."

The directors of this company did not even
realize that when they suggest to the stockholders
that they sell their stock dividends they are tell-
ing the stockholders that their company is a poor
company to own stock in and they had better get
out.

Inasmuch as all corporations can conserve cash by
paying dividends smaller than current earnings it is
obvious that a stock dividend is unnecessary to accom-

plish this stated objective.2 Failure to declare a

 

1Carothers, op. cit., p. 2277.

2Myers and Heath, op. cit., p. 756.

76
dividend, cash or stock, will conserve cash. Perhaps
this leading motive can be rephrased, "to conserve cash
and pacify the stockholder." In this manner the corpo-
ration is able to conserve its cash by not issuing a cash
dividend and at the same time keeping the stockholder
happy by giving him something that he accepts as a
reasonable substitute.

Another reason often given is to broaden the base
of ownership. This motive, also underlying most stock
splits, can be accomplished only when the stock distri-
bution is relatively large. This objective may be
accomplished less expensively by the use of an occasional
large stock split.1

The desire to broaden the base of ownership is
prompted by a variety of reasons. Among these are to
provide sufficient distribution to permit applying for
a listing on an exchange,2 to increase the number of
shares available for trading,3 and to increase good will
among prospective customers.

Another reason often suspected but never admitted

 

lIbid.

2For example, see dividend announcements of Russ
Togs, Inc., The Wall Street Journal (Midwest ed.), August
27, 1962, p. 12, and Indian Head Mills, Inc., The Wall
Street Journal (Midwest ed.), June 26, 1963, p. 15.

3For example, see dividend announcement of Sterling
Electronics, Inc., The Wall Street Journal (Midwest ed.),
January 10, 1963, p. 14.

77
is to obscure growth, and hide exhorbitant profits.l In
this way, earnings per share and dividends per share are
kept at a low level and, presumably, subject to less
criticism by such parties as labor unions and customers.
Professor William A. Paton labels this a "questionable
reason."2

One of the purposes of stock dividends is said

to "give the stockholder some tangible evidence" of the
growth and capitalization of earnings in his corpora-
tion53or "evidence of corporate prosperity."4 The
following quotation by a security analyst is typical of
this kind of explanation:

The payment of stock dividends is used when a
corporation decides that earnings have to be
retained for expansion purposes, but that the
stockholder should get some tangible evidence
that the directors are cognizant of his needs.5

Such thinking, that the stockholder requires or

is better off with some "tangible evidence," is not

 

lBothwell, op. cit., pp. 90-91.
2Paton, Advanced Accounting, p. 587.

3See announcements of stock dividend distribu-
tions by Standard Oil Co. (Ohio), The Wall Street Jour-
gg; (Midwest ed.), April 12, 1963, p. 12, and Warner
Electric Brake and Clutch Co., The Wall Street Journal
(Midwest ed.), May 9, 1963, p. 18.

4Ira U. Cobleigh, "Split Personality of the Bull
Market," The Commercial and Financial Chronicle, Decem-
ber 25, 1958, p. 2700.

 

5Walter Schloss, "In Defense of Stock Dividends,"
The Commercial and Financial Chronicle, December 31,
1953, p. 2641.

78
very realistic. Because a stock dividend gives nothing
to the individual shareholder that he did not already
possess and the corporation parts with nothing, it is
hardly giving anything in the way of tangible evidence
to the stockholder. Furthermore, the only evidence the
stockholder really wants or needs in conjunction with
the growth and profitability of his corporation is that
of increased cash dividends, increased market value,
and reports of increased earnings per share. The
"tangible evidence" of a stock dividend is purely
illusory. This kind of thinking, on the part of the
board of directors, is contrary to the needs of the
stockholder.

Professor M. Richard Sussman, in a questionnaire
survey sent to 120 companies, attempted to determine
corporate management motives in using stock dividends.
Dr. Sussman reported:

The replies stated many objectives as the pur-
poses for which the stock dividends were issued.
However, upon further analysis, it was considered
that only a few of these stated objectives were
rational in view of the expense and inconvenience
associated with the issuance of new shares.

In the opinion of this author, the primary under-

lying reason for issuing stock dividends was to
win the good will of the stockholder. This reason
was expressed in some replies, implied in others,
and ignored in the remainder. In but a few
instances other methods could have accomplished
most of the results desired from stock dividends.

However, the new shares were favored by the reci-

pients, and this added an important good will
factor.l

 

lSussman, op. cit., p. 100.

79

Other Allegcd Advantages of Stock Dividends

It has been argued by some proponents of stock
dividends that "by converting earnings into permanent
capital you are making the management earn money on this
reconverted capital."l In other words, now that the
corporation has capitalized a portion of its retained
earnings a greater return to be earned by the corpora-
tion can be expected. This implies that the amounts
appearing in the capital and capital surplus (paid-in
surplus) accounts are really amounts that the corpora-
tion is obliged to put to work while the dollar figure
appearing in the retained earnings account is not in the
same category. The distinction between the capital sur-
plus and capital accounts, and the retained earnings
account is purely a theoretical one from the legal and
accounting point of view. Clearly, the amounts appear-
ing in the uncapitalized retained earnings account appear
also in some form of assets of the corporation and are
certainly the equal responsibility of management and
the board of directors. This is evident when one
inspects the stockholders' equity section of the bal-
ance sheet of many large, well-established corporations
and sees the large amount of retained earnings in rela-

tion to the capital stock account. Certainly no

 

lSchloss, loc. cit.

 

80
observer, financial analyst, or investor thinks of these
stockholders' equity accounts as separate items. The
corporation is looked upon as the custodian and the user
of all the funds represented in the stockholders' equity
section of the balance sheet.

It has been suggested that "stock dividends tend
to reduce income taxes by translating regular income to
capital gains,"1 and enable "large stockholders to avoid
taxation."2

This argument makes little sense if it is recog-
nized that the stockholder receives neither income nor
anything else of value when he receives a stock dividend.
Dr. Neil Carothers answers this argument:

Stock dividends are not income and cannot be

converted into income. But, it is alleged,

there is an income tax saving through through [sic]
stock dividends. This absurd statement must be
examined, if only briefly. The stockholder with
100 shares who receives a stock dividend of 10
shares can sell the 10 shares if he chooses,
exactly as he could have sold nine shares before
the stock dividend. He sells 1/11 of his entire
ownership in the company. That is all there is
to it. As in the sale of any other property, he
pays a capital gains tax if any is due. If he
sold at a loss on his original investment he pays
no tax. If the profit was large, the tax may be
large. The sale of property has nothing to do
with his dividends or with his income tax on

his dividends.3

Benjamin Graham believes that the federal taxation

of cash dividends and the nontaxability of stock

 

lSchloss, ibid. 2Bothwell, op. cit., p. 91.

3Carothers, op. cit., pp. 2255, 2277.

81
dividends are factors that now make cash dividends less
desirable than they used to be and systematic stock
dividends more desirable. He explains his position
this way:

Corporations which need large sums for capital
development, as most do today, are caught on the
horns of a dilemma with respect to dividends. If
they conserve cash, and make small dividend pay-
ments, the investor obviously suffers as regards
return. If, on the other hand, they pay generous
cash dividends, and then come back into the market
for capital the shareholder may be scarcely better
off. He will pay a high income tax on the divi-
dend received, and if he then subscribes to the
new capital issue he will be just where he was
before, minus the tax. In the case of many util-
ities, and in the dramatic case of A. T. & T.
in particular, . . . this needless shuffling of
funds back and forth between company and share-
holder has been enormously expensive over the
years.

There is, therefore, a prima facie case for the
use of the stock dividends which avoid giving
this unnecpssary hostage to the Federal Treas-
ury. . . .

Mr. Graham erroneously compares the corporate
alternative of declaring large cash dividends and the
selling of additional stock to raise capital, with the
other alternative of paying stock dividends. He
reasons that the latter alternative is better because
the corporation obtains its money and the federal
treasury does not get its share. This argument pre-
sumes that the stockholders who receive cash dividends
will be the same persons who would subscribe to addi-

tional stock.

 

1Graham, Barron's, August 10, 1953, p. 5.

82

A better comparison of alternatives would be to
compare the retention of all earnings by not paying any
cash dividends with the alternative of paying stock
dividends. Both of these alternatives provide the same
effect, that is, the corporation retains those assets
that it already had and the stockholder gets nothing in
either case.

Robert E. Zang and George C. Thompson, in a sur-
vey of stock-dividend-issuing corporations, made in
1949, sought to discover whether tax considerations
constituted any part of the motivation of the corpora-
tion in issuing stock dividends. They found that no
such consideration determined the choice of the stock
dividend policy, and that the policy factors which

determined dividend policy were basically economic.l
Company Practices and Attitudes

An analysis of recent newspaper stories containing
corporation stock dividend announcements reveals a vari-
ety of company practices and attitudes regarding stock
dividends.

As indicated earlier, the most important motive
underlying the use of stock dividends is to conserve
cash. American Sterilizer Company recently declared a

two per cent stock dividend along with an increased

 

1Zang and Thompson, op. cit., p. 886.

83

cash dividend. The president attributed the stock divi-
dend to a "better cash position" than the previous year.1

Some companies announce a regular dividend policy
that includes a stock dividend. An example is the Clark
Cable Corporation, whose directors recently set a regu-
lar dividend policy providing a five-cents-a-share cash
dividend and a three per cent stock dividend semi-
annually.2

Often the declaration of a stock dividend is
announced as an extra or supplementary dividend. Aero-
quip Corporation, International Silver Company, and
Avnet Electronics Corporation have made such announce-
ments in recent times.3

The president of Buckner Industries, Incorporated,
announced that "the company would consider a cash pay-
ment of about five cents or a stock distribution of
3% to 5%."4 This type of announcement equates a stock
dividend with a cash dividend and gives the public the

impression that both are probably equal in all respects.

 

1The Wall Street Journal (Midwest ed.), November 16,
1962, p. 14.

2The Wall Street Journal (Midwest ed.), March 14,
1963, p. 17.

 

3The Wall Street Journal (Midwest ed.), August 22,
1962, p. 12; November 29, 1962, p. 17; (Eastern ed.),
July 10, 1962, p. 16.

4The Wall Streec Journal (Midwest ed.), Sep-
tember 12, 1962, p. 27.

84

General Public Utilities Corporation declared a
special four per cent stock dividend "approximately
equal to the increase in book value of the corpora-
tion's common stock arising out of the sale in 1962 of
its investments in Manila Electric Co."1 Here is a
case of a company issuing a stock dividend equal to
capital gains that have been realized and retained in
the company.

At least one company, Nautec Corporation, has a
regular stock dividend policy to comply with a long—
term financing agreement.2

While it appears that many corporate managements
strive to mislead their stockholders in the area of
stock dividends, it is encouraging to note that there
are some exceptions. The following newspaper quota-
tions are examples of a more honest approach.

In a [sic] answer to a stockholder's question,
Mr. Frawley said directors are considering a

stock dividend. "I never liked a stock divi-
dend," he added. "It is just another piece of
paper."3

Directors omitted the year-end 2% stock dividend
declared in recent years. "Having increased
our cash dividends during the last several years,

 

1The Wall Street Journal (Midwest ed.), October 5,
1962, p. 21.

2The Wall Street Journal (Midwest ed.), November 8,
1962, p. 20.

3The Wall Street Journal (Midwest ed.), May 23,
1962, p. 18.

85
the company has at this time decided to change
its policy on stock dividends," Charles A. Specht,
president, said. "We no longer believe it is in
the best interests of the company to pay regular
stock dividends."1
Not only do some companies have a regular policy
of distributing stock dividends, but at least one,
Simplicity Manufacturing Company, has announced a plan
"to pay a 5% stock dividend in each of the next three
years."2
While some companies try to maintain a constant
percentage distribution of stock dividends, others
vary the percentage, depending on the market price of
the stock at the time of distribution. The Meadow Brook
National Bank announced this policy at the time of a
reduced stock dividend declaration.3
An unusual twist to stock dividend policies is
indicated in the announcement on future dividend policy
of the Seagrave Corporation. This company plans to
distribute a regular stock dividend and at irregular

times, extra dividends in the form of cash. This is

opposite to the plan of many companies that pay regular

 

1The Wall Street Journal (Midwest ed.), Novem-
ber 30, 1962, p. 14.

2The Wall Street Journal (Midwest ed.), Decem-
ber 13, 1962, p. 4.

3The Wall Street Journal (Midwest ed.), June 15,
1962, p. 3.

86

cash dividends with an occasional extra in stock.1

The Bon Ami Company recently declared a five
per cent stock dividend plus a two per cent pyppg stock
dividend, both payable at the same time for the same
date of record. This type of announcement, fortunately,
is unusual. The only result of such a policy can be
increased confusion and misunderstanding of the stock
dividend device.2

The management of Raytheon Company, a regular
issuer of stock dividends for years, was severely
criticized by several stockholders in attendance at
the recent corporate annual meeting. They criticized
management for not paying cash dividends. This report
is encouraging, in that it shows that not all stock-
holders are deceived by the stock dividend device.3

The attitude of one company executive, revealed
in a survey of dividend policy, is perhaps representa-
tive of many companies using the device today: "We
regard a stock dividend as a very poor substitute for
cash dividends, but it does please the stockholders;

.004

 

1The Wall Street Journal (Midwest ed.), April 11,
1963, p. 16.

2The Wall Street Journal (Midwest ed.), Janu-
ary 21, 1963, p. 10.

3The Wall Street Journal (Midwest ed.), May 23,
1963, p. 8.

4Marshall and Thompson, loc. cit.

87

Issuance Costs

The cost of issuing stock dividends has received
relatively little attention in the literature. In evalu-
ating the financial role and effect of stock dividends,
this element must be considered. ‘

There are those who maintain that the cost of
issuing a stock dividend is relatively small:

And the new plan isn't costing much either; total
out-of—pocket expenses connected with it were
only $180,000, which is roughly the cost of rais-
ing $4.5-million in the open market.1

. . . the stock dividend yields major savings
in the cost of obtaining new equity capital.
Even a company with the best financial record
cannot attract money in the open market without
some sacrifice. Underwriters require compensa-
tion. Legal fees and other expenses are heavy.
In fact, the actual discount from the market
price, which must be accepted on a new issue,
often runs to 10%. This is quite forbidding,
compared to the virtual lack of cost involved
in raising funds by taking retained earnings
into stated capital by means of a stock divi-
dend.2

There are others who admit to the high cost of
issuing stock dividends. An article in Fortune says:

A lesser factor, but one that influences
middling-size and smaller companies, is the cost
of declaring a stock dividend.‘ Handling charges
may eat a disproportionate amount of a stock
dividend's value. The Bankers Trust, one of the

 

1"Stock Dividends Win a New Fan," Business Week,
March 21, 1959, p. 52.

 

2Oscar Lasdon, "Stock Dividends: They Are Grow—
ing More Popular with Investors," Barron's, Febru-
ary 6, 1956, p. 5.

88
largest corporate transfer agents, charges on
average between $1.50 and $1.75 per account
for processing a stock dividend, compared to
16 cents per account for a cash dividend.1
A study made by an underwriting and brokerage
firm, and reported by C. A. Barker, estimates that the
cost of distributing a one per cent stock dividend is
$1 per shareholder, and the cost of a 100 per cent
stock dividend in the 25,000-to-35,000 shareholder class
would be about $100,000, or about $3 per shareholder.2
Mr. Lytton, of Lytton Financial Corporation,
recently admitted the high cost of issuing stock divi-
dends when he announced plans to discontinue the com-
pany's regular annual stock dividend. He indicated the
switch to cash dividends was being made to cut expenses
in distributing stock dividends.3
Further evidence of the high cost of issuing
stock dividends is indicated in the newspaper story
concerning an unidentified St. Louis financial company
that incurred about $40,000 in expenses in the issuance

of a four per cent stock dividend in 1957.4

The tax problem concerning the deductibility of

 

l"Reputations and Dividends," Fortune, LVIII
(August, 1958), 81.

2Barker, Harvard Business Review, XXXVI, 112-13.

 

3The Wall Street Journal (Midwest ed.), Janu-
ary 2, 1963, p. 19.

4"Tax Report," The Wall Street Journal (Midwest
ed.), December 12, 1962, p. l.

89

issuance costs is considered in the following chapter.

The foregoing indicate that issuance costs for
stock dividends are substantial. If one subscribes to
the theory that little benefit is derived from the use
of stock dividends, it follows that such sums of money
are being wasted. The amounts could have been distri-
buted to the stockholders in the form of cash dividends
at relatively little cost to the corporation. To argue
that the amounts involved are reasonable in comparison
to costs of issuing new securities is not sound reason-
ing. A stock dividend does not bring in additional
capital but results only in maintaining what the corpo-
ration has and in placating the stockholder with addi-
tional pieces of paper, issued at considerable expense
under the guise of a benefit to the unknowing investor.

R. E. Zang and G. C. Thompson, in their survey of
the New York Stock Exchange companies issuing stock
dividends during the period 1945-1948 inclusive, found
that the cost of issuing a stock dividend was "too
insignificant a factor to act as a deterrent of material
consequence."1 This attitude is borne out by the almost

steadily increasing use of the stock dividend device.
Other Disadvantages of Stock Dividends

As indicated earlier, the expense involved in

 

1Zang and Thompson, loc. cit.

90
distribution of a stock dividend can be considerable. As
part owner of the corporation the stockholder suffers by
such expense. The stock dividend device is also costly
to companies, such as brokers and trust companies, who
hold stock in other companies.

Where the stockholder maintains a safekeeping
account with a bank for example, the bank must
receive in the shares resulting from the stock
dividend, set up the necessary record, write to
the customer-stockholder requesting instructions
whether to sell the fractional share or "round
out," write off the fractional share, then receive
in either the cash representing the proceeds of
sale or the whole share resulting from the pur-
chase of the additional fraction to "round out."
The record keeping involved in the fraction
alone is far more extensive and hence expensive
than the straight purchase or sale through a
broker of many thousands of shares in one trans-
action. Since these costs must eventually be
passed on to the stockholder, he suffers not
only because the dividend involves expense to
the company in which he holds stock, but also
because indirectly it cost him money to receive
the stock dividend.1

The stock dividend may also be an annoyance to the

small stockholder:

He will receive fractional shares and must either
buy to round out to a full share or must sell.
This can usually be done at no cost to the stock-
holder through an agent which the corporation
appoints for the purpose. If he buys the neces-
sary fractions to round out to a full share, he
must invest additional cash. If he sells his frac-
tion, he will have a capital gain or loss for
income tax purposes. The basis of his old shares
must be distributed over the total full and frac-
tional shares he owns. The basis of the frac-
tional share is subtracted from the sale price

to obtain the capital gain or loss. This is
usually quite a nuisance for the tax involved and

 

1Myers and Heath, op. cit., p. 756.

91
probably is beyond the understanding of the many
small holders. It is entirely possible that they
pay tax on the full sale price of the fractional
share.1 '

Louis D. Marshall and G. Clark Thompson quote an
executive of a stock-dividend-using corporation who
voices a similar criticism:

"We believe that, to the small or even the aver-
age stockholder, frequent stock dividends are an
irritation. Fractional shares have to be dealt
with, and the cost of sale per share of a small
number of shares (if the holder wishes to convert
the dividend into cash) is high. Hence our prac-
tice has been to transfer retained earnings to

our capital account only occasionally and then
in fairly large amounts."

Summary

Some of the more important financial aspects of
stock dividends have been considered in this chapter as
the foundation for a proper accounting for their issu-
ance.

Among other things, it has been shown that stock
dividends are misnamed and that they produce no lasting
value for the stockholder. Furthermore, they are costly
to issue and a nuisance to many stockholders. The
motives for their issuance are many and sometimes contra-
dictory. Any benefits that may be derived from their
issuance can be more economically accomplished in other
ways, such as withholding cash dividends or using stock

splits.

 

1Ibid. 2Marshall and Thompson, loc. cit.

CHAPTER V
FEDERAL INCOME TAX AND STOCK DIVIDENDS

This chapter considers the tax status of stock
dividends from the points of view of the issuing corpo-
ration and the recipient. The issuing corporation is
primarily concerned with the deductibility of issuance
costs in determining taxable income. The recipient is
concerned with the taxability of a stock dividend
received.

While the emphasis in this dissertation is upon
the issuing corporation the tax status of the recipient
of a stock dividend should not be ignored. As was
pointed out in Chapter I, the use of the stock divi-
dend device is guided by the attitudes of the recipient
and of the taxing authorities.

Tax laws are passed and administered within a
constitutional framework that may or may not take cogni-
zance of accounting theory. The question of the income
status of stock dividends has already been considered in
Chapters II and IV. No attempt is made in this chapter
to consider the appropriateness or inappropriateness of
the tax laws and their administration in light of

92

93
accounting theory. Further discussion of taxes and

accounting theory is included in Chapter VII.

Receipt of Stock Dividend

Present Tax Status

The general rule now in effect under the 1954
Internal Revenue Code is that no tax is imposed upon the
receipt of a stock dividend by a stockholder. This rule
applies to stock dividends distributed on or after
June 22, 1954. Stock dividends distributed before this
date are governed by the rules in effect under the pre-
vious 1939 Code.

The above rule does not apply if the stock divi-
dend is distributed in lieu of a cash dividend. If the
distribution of stock is made in discharge of preferred
dividends of the current or preceding year, or the stock—
holder is given a choice of a cash or a stock dividend,
such distribution is taxable under the 1954 Code.

This law applies equally, without distinction, to
distributions of treasury stock or authorized but
unissued stock.

Although the receipt of an ordinary stock divi-
dend is not taxable, the subsequent sale of the stock
dividend results in a reportable gain or loss. This gain
or loss is found by comparing the amount realized from

the sale with the "tax basis" of the stock. If the shares

94

received as a stock dividend are nontaxable and are of
the same class as the stock owned, the basis of the new
stock is determined by dividing the basis of the old stock
by the total number of shares, both old and new. If the
nontaxable stock dividend is of a different class or
preference than the stock in respect to which the
distribution is made, the basis of the new stock is
determined by apportioning the basis of the old stock
between the old and new stock according to the relative
market values of each class of stock at the time of
distribution. In all cases, the date basis for deter-
mining the holding period for capital gain or loss pur-
poses is the date basis of the old shares.

Under a new rule included in the 1954 Code, Sec-
tion 306, the proceeds from the sale of certain types
of nontaxable stock dividends are taxed at ordinary
income rates. This provision was included to close a
loophole in a prior law known as "preferred stock bail-
out." In general, this provision pertains to any stock
received as a nontaxable stock dividend, other than
common stock issued with respect to common stock. The
most common example of "Sec. 306 stock" is a nontaxable
preferred stock dividend paid on common stock. Prentice-
Hall in its Federal Taxes explains the use of this device,
previously legal under the old tax code:

This is a device the object of which is to with-
draw earnings from a corporation in such a manner

95
as to be taxed at the lower capital gain rate
rather than at higher rates applicable to ordi-
nary income.

Through the device of the "preferred stock
bail-out" the stockholders of a corporation
(usually a closely-held corporation) arrange
to have the corporation declare and distribute
a nontaxable stock dividend in preferred stock
on their holdings of common stock. This divi-
dend stock is then sold to an outsider who
turns it back to the corporation for redemp-
tion. The stockholders reported the profit as
long-term capital gain. Except for the advan-
tage from the lower capital gain tax rate, the
stockholders are in the same position as if a
cash dividend had been received directly from
the corporation.1

Change in Proportional Interest

Prior to the enactment of the 1954 Code, the rule
developed by a line of court decisions considered a
stock dividend as not taxable unless the proportional
interest of the stockholder after the distribution was
essentially different from his former interest. The
1954 Code eliminated this rule and generally provides
that an ordinary stock dividend is not taxable. One of
the exceptions to the present general rule, as described
earlier in this chapter, provides that a stock distri-
bution is taxable when a stockholder is given a choice
of a cash or a stock dividend.

In 1955 the Citizens Utility Corporation devised
a plan based on two classes of common stock. Class A

stock was entitled to stock dividends only while Class B

 

1Federal Taxes (Englewood Cliffs, N. J.: Prentice-
Hall, Inc., 1962), par. 9410, p. 9364.

96
stock was entitled to cash dividends only. Class B would
not be convertible to Class A but the reverse would be
allowed.

The corporation submitted its plan to the Internal
Revenue Service for advance determination, and in two
rulings in 1955 the Internal Revenue Service approved
the contemplated recapitalization and held that the stock
dividends issued under this plan would not be taxable.
The plan was put into operation and existing common
shareholders were permitted to choose the class of stock
they preferred.

Shortly thereafter, in July 1956, the Internal
Revenue Service proposed an amendment that would pre-
clude any such two-class arrangement and subject the
stock dividends to a tax. In 1959 a Congressional
Committee considered the proposed amendment to Section
305 of the 1954 Code to provide for the taxation of
such stock dividends. As of this date (1963) no change
has been made by the Internal Revenue Service or by
Congress. No other corporation is known to be using
the two-class capitalization plan devised by Citizens

Utility Corporation.l

 

1Charles D. Leist, "Efforts to Tax Stock Divi-
dends Under Section 305 Opposed; Experts Differ," The
Journal of Taxation, XI (August, 1959), 70—71.

97

History

The 1913 Congressional Act, the first federal
income tax law, made no mention of stock dividends. In
1918 the Supreme Court of the United States decided in
Towne v. Eisner (245 U.S. 418, 38 Sup. Ct. 158) that
the taxation of stock dividends under the 1913 Act was
invalid. The case involved the distribution of a stock
dividend of common stock on common stock, the only stock
outstanding, recorded by a transfer of earnings accu-
mulated prior to March 1, 1913, the effective date of
the revenue act.

The 1916 Act provided expressly for the taxation
of stock dividends. In 1920 the United States Supreme
Court, in Eisner v. Macomber (252 U.S. 189, 40 Sup. Ct.
189), held that a dividend in a corporation's common
stock paid to the then common stockholders was not
income within the meaning of the word "income" as used
in the Sixteenth Amendment to the United States Constitu-
tion. This case also concerned the distribution of a
common stock dividend on common stock where only common
stock was outstanding. The Commissioner, feeling that
the Towne case had been decided on the basis that the
earnings transferred to the capital account had been
accumulated prior to March 1, 1913, had assessed a tax
on the stock dividend shares representing earnings

accumulated after February 28, 1913. In a five—to-four

98
decision the Supreme Court found the stock dividend not
taxable income.
The court pointed out that true stock dividends:
1. Do not change the proportionate interest of
the shareholders.
2. To be taxable, must be income, and since
there was no realization in a true stock divi-
dend, there was no income.
3. Do not give the recipient the means to pay
a tax without selling his new shares, and in
selling his new shares, the shareholder parts
with a portion of his capital interest.
4. Do not accurately measure the extent to which
an individual shareholder has been enriched by
the operations of the company.1

After the Macomber case the Internaerevenue Ser-
vice interpreted the case to hold that all stock divi-
dends were constitutionally exempt from federal taxation.
This interpretation was incorporated in the Congressional
Acts of 1921, 1924, 1926, 1928, 1932, and 1934.

In 1936, the Supreme Court in Koshland v. Helver-
ing (298 U.S. 441, 56 Sup. Ct. 767) pointed out that
both the Internal Revenue Service and the Congress had
interpreted the Macomber decision too broadly. The
Court held that a stockholder receives income when the
stock dividend gives him an interest different from that
which he formerly held. In the Koshland case common

stock was issued as a stock dividend upon cumulative non-

voting preferred stock.

 

1Elmer A. Oesterlin, "Tax Status of Stock Divi-
dends," L. R. B. & M. [Lybrand, Ross Bros. & Montgomery,
Certified Public Accountants] Journal, XXXV (February,

99

The Koshland decision led to the so-called "differ-
ent interest rule" which was incorporated about a month
later into the 1936 Revenue Act.1 The amended tax law
exempted only those stock dividends that were constitu-
tionally immune, rather than exempting all stock divi-
dends. The Internal Revenue Service later contended
that no stock dividend was constitutionally immune but
the Supreme Court, in a 1943 decision, Helvering v.
Griffiths (318 U.S. 371, 63 Sup. Ct. 636), refused to go
along with the Internal Revenue Service. The Court
ruled that Congress intended to leave intact the rules
previously laid down by the courts.

. . . the Supreme Court was given the oppor-
tunity to overrule its decision in Eisner g.
Macomber, but refused to do so. This_also was
a case of a stock dividend in common stock on
common stock where only common stock was outstand-
ing. The court reaffirmed the reasoning of the
majority in Eisner x. Macomber, and found the
dividend nontaxable because it caused no altera-

tion of the pEoportionate interests of the
shareholders.

Issuance Costs

As indicated in Chapter IV, issuance costs of
stock dividends can be considerable. They include such
costs as printing of letters and securities, state and

federal tax transfer stamps, postage, stock exchange

 

lDavid Green, Jr., "Taxable Stock Dividends,"
The Journal of Business, XXVI (October, 1953), 224.

2Oesterlin, loc. cit.

100
listing fees, and service charges.

Section 162 of the 1954 Internal Revenue Code,
currently in force, allows as a deduction for a busi-
ness "all the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any
trade or business . . . ."

Section 263 stipulates that no deduction shall
be allowed for "capital expenditures."

The deductibility of stock dividend issuance
costs rests upon the relationship of such costs to the
above—mentioned sections of the Internal Revenue Code.
If they are "ordinary and necessary expenses" they are
deductible. On the other hand, if they are "capital
expenditures" they are not deductible.

In 1960, the Internal Revenue Service issued a
ruling (Rev. Rul. 60-254, I.R.B. 1960-31, 8) affecting
the tax status of stock dividend costs:

Cost incurred by a corporation in connection
with the issuance of its capital stock and pay-
ment of a stock dividend is not deductible as
an ordinary and necessary business expense under
section 162 of the Internal Revenue Code of 1954,
since such cost is a capital expenditure.

This ruling reversed the previous practice of

allowing the deduction of stock dividend issuance costs
and brought strong criticism from tax practitioners.

One of these, Gerald J. Kahn, writing in The Journal of

Taxation, criticized the ruling as follows:

 

. . . the Commissioner recently struck down a
view widely held by tax practitioners that expense

101

connected with the issuance of capital stock in
payment of a stock dividend is deductible as
ordinary and necessary business expense. . . .

While at first blush the Commissioner's posi-
tion may appear to be sound, based on the general
rule that expenses incurred in the issuance of
its capital stock by a corporation are not deduct-
ible, it is in fact specious in that it over-
looks the true character of the expenses. More-
over, it is blind to the fundamental proposition
that what "might be classified as a capital
expenditure under certain circumstances, may,
under different facts and circumstances, be
considered expense." To adhere rigidly to the
rule that all expenditures connected with the
issuance of capital stock must be capitalized
irreSpective of the surrounding circumstances
is unrealistic and ignores the rule that each
case must be decided on the basis of its own
facts. . . .

Both of the cases cited in Rev. Rul. 60-254
involve the issuance of stock in order to increase
capitalization. The courts held that the expenses
attendant thereto are part of the cost of acquiring
capital and are to be considered a reduction in the
proceeds from the sale of stock. This is distin-
guishable from the issuance of capital stock by a
corporation in payment of a stock dividend. In
the latter situation there is no return of capi—
tal to the corporation in exchange for its stock
and, accordingly, no proceeds against which the
cost of issuance can be offset.

A distinction must be recognized between
expenses of stock issues for the purpose of
raising capital and stock issues intended and
used for the payment of a stock dividend. How-
ever, there is no similar distinction between
expenses connected with a cash dividend and those
connected with a stock dividend where the stock
issuance is in pursuance of the dividend policy
of the corporation.

Doubtless the Commissioner would be on firmer
grounds in disallowing expenditures made for the
issuance of a stock dividend where its purpose is
to produce a reshuffling of the capital structure
of the issuing corporation. On the other hand,
where the stock dividend is declared as part of
the regular dividend policy of the corporation,
the expenditures connected therewith should be
treated as being in the nature of recurring
expenditures and, as such, currently deductible.
This would be analogized to the case where the

 

102

annual fees paid for maintaining a listing on the
stock exchange are held to be currently deductible,
whereas the initial cost of listing the stock on
the exchange is considered to be a capital expen-
diture.

Practitioners are viewing this ruling with
great consternation. Here again is an extension
of the long arm of administrative fiat to upset

.a practice of long standing--a practice in which
the Service had to our knowledge heretofore
acquiesced.

But even more deplorable is the fact that the
ruling apparently reflects a change in the
Service's position shortly before the announce-
ment. This is evident by the fact that on May 2,
1960, the issue embodied in the ruling was pre-
sented for the first time to the Tax Court. It
now remains for the court to determine the valid-
ity of the Commissioner's position. The frequency
with which taxpayers are confronted with this
issue would seem to insure that a vigorous effort
will be made to invalidate the ruling. It is to
be hoped the courts will view the problem more
realistically than the Commissioner has and recog-
nize that the expenses connected with the issuance
of a stock dividend are not distinguishable from
those connected with a cash dividend.1

The first case presented to the Tax Court as a
result of the above ruling was that of the United
Industrial Corporation (T.C. Memo 1962-280). In that
case the company was denied a deduction of approxi-
mately $32,000 for stock dividend expenses for the years
1956 and 1957. The company had declared two per cent
stock dividends in June, September and December of 1956.
The Court ruled against the company:

. . . we hold here that the issuance and

 

1Gerald J. Kahn, "IRS Wrong in Ruling That Expenses
of Stock Dividend Issue Are Not Deductible," The Journal
of Taxation, XIII (October, 1960), 246-47. In this
article Mr. Kahn also makes reference to Libbyg& Blown
£33., 4 BTA 910 and Philip Shore, TCM 1959—166.

103

distribution of a stock dividend results in a change

in the capital structure of the issuer, rendering

expenses incident thereto nondeductible as ordinary

business expense. The result is the same regard-

less of the fact that petitioner's purpose in

paying a stock dividend rather than its traditional

cash dividend was for the conservation of its cash

for expansion and additional plant. Accounting

procedures and business custom disclosed by the

record herein, have no bearing upon the nature of

the expenses here sought to be deducted.1

The above memorandum decision was issued on
November 28, 19620 The Tax Court judge, in his decision,
referred to a similar case decided a few days earlier
in the same court. He found the United Industrial Corpo-
ration case "indistinguishable" from the earlier case,
that of General Bancshares Corporation (39 T.C. No. 40).2
At issue in the General Bancshares Corporation

case was the deductibility of approximately $40,000
incurred by the company when it paid a four per cent
stock dividend in 1957. The company had issued regular
stock dividends since 1950. Expenses for previous stock

dividends were allowed to be deductible by the Internal)

Revenue Service.

 

l"T.C. Memo 1962—280," Tax Court Memo Decisions:
1962 (Englewood Cliffs, N. J.: Prentice-Hall, Inc.)

2"Tax Court memorandum decisions (T.C. Memo)" are
to be distinguished from "Tax Court decisions (T.C.)."
The memorandum opinions are not printed, are not avail-
able to the public, and are supposed to be limited to
those opinions having no value as a precedent. Memo-
randum opinions are issued in mimeographed form princi-
pally for the use of the court, and are available in
limited numbers. See Federal Taxes: Tax Court Reported
and Memorandum Decisions (Englewood Cliffs, N. J.:
Prentice-Hall, Inc.), pp. ii, iii.

104

The company argued that the stock dividend issu-
ance expenses were related to "carrying on a trade or
business" in that the issuance of a stock dividend
allowed the retention of funds, thus improving its
credit standing. .

The Court ruled against General Bancshares Corpo-
ration, deciding that the expenditures were capital
expenditures. The Court decision further stated:

The capitalizing of earned surplus by peti-

tioner may have improved its credit position,
but even if this were the purpose of peti—
tioner's change in its capital structure, the
expenses of such change are not deductible as
ordinary and necessary business expenses.1

The two tax court decisions reported above upheld
the 1960 revenue ruling and permitted the retroactive
application of the ruling. Both cases involved stock
dividends issued in 1956 and 1957. Some tax experts
complained that the Internal Revenue Service acted
unfairly in applying retroactively a ruling reflecting
a belated change in position.2

In the General Bancshares Corporation case the
company argued that the 1960 revenue ruling should not

be applied retroactively to a period of time when the

ruling was not in effect. The Court in its decision

 

l"39 T.C. No. 40) Federal Taxes: Tax Court
(Englewood Cliffs, N. J.: Prentice-Hall, Inc.) par. 39-
40.

2"Tax Report," The Wall Street Journal (Midwest
ed.), December 12, 1962, p. l.

105

supported the Internal Revenue Service:
Certainly, petitioner may have believed that the
costs of issuing its stock dividends in 1957 were
deductible if similar deductions in prior years
had not been disallowed by reSpondent, but
respondent is correct in his position that this
fact does not prohibit his being sustained in his
present position if that position is legally
correct.

The most recent court decision concerning this
subject is that of the Arkansas Louisiana Gas Company
(T.C. Memo 1963-77). The Tax Court rendered a decision
on March 15, 1963. In this case the company claimed as
a business expense deduction the costs incurred in
connection with the issuance of stock dividends in the
years 1955 and 1956. The cost of issuance totalled
approximately $69,000 for the two years. The Tax Court
judge decided that this case was identical to the
General Bancshares Corporation case and ruled against

the tax-paying corporation. The deduction was not

allowed.

 

l"39 T.C. No. 40," loc. cit.

 

CHAPTER VI
STUDY FINDINGS

This chapter, consisting of two main parts, pre-
sents the results of study of this dissertation. The
first part is based on an analysis of all American com-
panies distributing stock dividends in 1961. The second
part is based on an analysis of reporting practices
concerning stock dividends as compiled by the American
Institute of Certified Public Accountants in the annual
volumes of Accounting Trends and Techniques In Published
Corporate Annual Reports.

Statistical data together with individual observa—
tions are presented. The intention underlying the
presentation of data in this chapter has been to thor-
oughly report actual practices of American corporations
regarding stock dividend distributions in recent years.
These practices include the size of stock dividends
utilized and the manner of handling and reporting them.

The main purpose of the studies reported in this
chapter is to determine the following: (1) the extent
of the accounting problem involved; (2) the adequacy of
existing procedures and theory of accounting; (3) the

106

107
existence of inconsistencies and special problems; and
(4) the basis for developing a theory of accounting for
the issuance of stock dividends.

Study of Companies Issuing
Stock Dividends in 1961

 

Scope and Method

A list of American companies distributing stock
dividends in 1961 was obtained through the use of Moody's
Dividend Record1 and Standard and Poor's Dividend Record.2
Both of these volumes contain lists of stock dividend
paying companies. Moody's list contains stock dividends
only, while Standard and Poor's list contains stock divi-
dends and stock splits for the year.

These two lists were analyzed and corrected so that
the resulting product was a list of American companies
distributing stock dividends in 1961. Excluded from the
prepared list were such items as duplications, foreign
corporations, companies distributing liquidating divi-
dends, stock dividends on different classes of stock,
dividends in stock of other companies and stock splits,
and companies declaring stock dividends in 1961 but issu—

ing them in 1962.

 

lMoody's Dividend Record: Annual Cumulative for
1961 (New York: Moody's Investors Service, 1962 .

2Standard and Poor's Dividend Record: 1961 Annual
Dividend Record (New York: Standard and Poor's Corpo-
ration, 1962).

108
From data contained in the above-mentioned books,

Moody's Manuals and other financial data records, the

 

following data were developed for each company that
appeared in the final list: name of company, exchange
traded, type of business, size of stock dividend, and
date or dates of distribution.

Appendix E lists these companies, the exchange on
which their common stock is traded, and the size of

stock dividends distributed.

Results of Study

Table 3 contains a summary of the companies
included in this study tabulated according to type of
industry and the exchange on which their common stock
is traded. Industry classifications used in this table
follow the classification system used by Moody's in
their annual volume reports: industrial, financial,
transportation, and utility. Financial companies
include: banking, finance companies, real estate,
mutual funds, insurance, and holding companies. Com-
panies not fitting into the financial, transportation or
utility classifications are included in the industrial
group. Industrial companies are the predominant users
of the stock dividend device. Financial companies rank
second. Within the financial classification, banking
organizations predominate. Transportation and utility

companies account for very few stock dividends.

109
TABLE 3

COMPANIES DISTRIBUTING STOCK DIVIDENDS IN 1961
CLASSIFIED BY INDUSTRY AND EXCHANGE

 

 

 

 

Industry Un- New York American Other

Classifi- listed Stock Exchan e Ex- Total

cation Exchange 9 changes
Industrial 282 123 100 ' 15 520
Financial 355 14 ll 8 388
Transporta-
tion 5 3 l _- 9
Utility 32 7 —- -- 39
Unclassifieda 5 -- —— -- 5

Total No.

of 679 147 112 23 961

Companies

Percentage 70 6 15 3 11 7 2 4 100 o

of Total ’ ’ ' ' '

 

aIndustry classification was not available because
companies are small and obscure.

Table 3 also indicates that unlisted companies,

that is, those not listed on an organized stock exchange
(traded over-the-counter) accounted for 70.6 per cent of
all stock dividend-distributing companies in 1961.
New York Stock Exchange-listed companies ranked second
with 15.3 per cent. Companies listed solely on regional
exchanges issued few stock dividends in 1961.

A comparison of the above figures with the results

of a study made by Oscar Lasdon, of companies distributing

110

stock dividends in 1955, discloses that unlisted com-
panies in 1961 accounted for a larger percentage of all
stock dividend distributing companies than in 1955.
Mr. Lasdon found that 55.7 per cent of the companies
distributing stock dividends in 1955 were unlisted.l

The commercial banking industry was the largest
user of stock dividends with 226 companies or 23-1/2 per
cent of all companies issuing stock dividends.2 (See
Table 4.) Almost all of the commercial banks, 221 of
226, are unlisted. Insurance companies ranked second in
the financial classification with 72 companies declaring

stock dividends in 1961.
Size of stock dividend

Although not directly related to the objectives
of this study, the sizes (expressed as percentages) of
stock dividends distributed in 1961 were analyzed.
These data were readily obtainable as a by-product from
the detailed analysis required for the other compilations.
In itself it is interesting and it is worthwhile to com-
pare with some other similar studies made in the past.

Table 5 is an analysis of the size and number of

 

lOscar Lasdon, loc. cit.

2While the "industrial" classification is the
largest in Table 3, it represents a larger number of
industries, including manufacturing, assembling, retail-
ing, etc. For this reason, the banking industry is the
largest user of stock dividends.

111
stock dividends distributed in 1961. Of the 961 com-
panies studied, 865 companies each distributed a single
stock dividend in 1961. The remaining 96 companies dis-
tributed 236 multiple (two or more) stock dividends during
1961. A total of 1,101 stock dividends were distributed
by the 961 companies. Of all stock dividends distributed,

83.4 per cent were ten per cent or less in size.

TABLE 4

FINANCIAL COMPANIES DISTRIBUTING STOCK DIVIDENDS IN 1961
CLASSIFIED BY NATURE OF BUSINESS AND EXCHANGE

 

 

 

Nature Un- New York American Other
of listed Stock Exchan e Ex- Total
Business Exchange 9 changes
Banking 221 -- —— 5 226
Finance 19 4 3 __ 26
Companies
Real Estate 18 4 4 1 27
Investment
Companies 8 -- 1 -- 9
Insurance 69 -- l 2 72
Holding
Companies 20 6 2 -- 28
Total No.
of 355 14 ll 8 388
Companies

 

C. Austin Barker found in his study of all NYSE-

1isted stock dividends distributed in the years 1951 to

112
1954 that 83 per cent of all stock dividends issued in
this four-period were ten per cent or less in size. He
also found that 22 per cent of the cases involving single
dividends in one year were below five per cent in size.1

For 1961, 69.7 per cent of such cases were under five

per cent.

TABLE 5

PERCENTAGE OF STOCK DIVIDENDS DISTRIBUTED IN 1961
ACCORDING TO SIZE

 

 

 

Percentage of single Percentage of all
stock dividends stock dividends
Size of distributed by 865 (1,101) distributed
Stock companies by 961 companies
Dividend
Total Unl. NYSE Other Total Unl. NYSE Other
2% Or 22 4 17 8 43 2 23 4 3o 5 22 8 48 9 44 9
less 0 O O O O O O 0
4'i9% 0‘ 43.5 36.5 69.7 51.4 52.0 43.4 74.4 66.5
ess
5% Or 67 3 59 2 9o 2 85 6 72 5 64 5 89 8 89 2
less 0 O O O O O O O
lofegg 80.2 74.9 97.7 89.2 83.4 78.2 95.5 93.2

 

 

 

Table 6 is a tabulation of the number of stock
dividends distributed in 1961 by the 96 companies that
distributed more than one stock dividend. The majority

of these companies favored two stock dividends.

 

lBarker, Harvard Business Review, XXXVI, p. 109.

113
TABLE 6

NUMBER OF COMPANIES DISTRIBUTING MORE THAN
ONE STOCK DIVIDEND IN 1961

 

Number of Companies
Number of Stock

Dividends Distributed

 

New York Other

 

 

112226 Stock Ex- Total
Exchange changes
2 48 8 13 69
3 5 1 5 ll
4 4 5 6 15
5 -- l -- 1
Totals 57 15 24 96

 

Table 7 indicates the most frequently distributed
sizes of stock dividends among the 865 companies distri-
buting single stock dividends and among all of the 961
companies distributing single and multiple stock divi-
dends. Among all companies, the most popular size divi-
dend was two per cent, with 228 distributions; however,
there were 225 distributions of five per cent. Among
the 865 companies distributing single stock dividends,
five per cent was the most popular size with 206 distri-
butions; two per cent was second with 167 distributions.
.Among the NYSE-listed companies, two per cent was the

most popular distribution.

114
TABLE 7

SIZES OF STOCK DIVIDENDS MOST FREQUENTLY
DISTRIBUTED IN 1961

 

Among all 961 com-

panies distributing

single and multiple
stock dividends

Among 865 companies
Exchange distributing single
stock dividends

 

UnliSted 5% 5%
NYSE 2% 2%
Other 5% 2%

All 5% 2%

 

Method of Accounting Used

A sample analysis was made of the companies dis-
tributing stock dividends in 1961 to determine the
method of accounting used to record the stock dividends.
It was desired to determine to what extent variation
existed among the companies, whether there was compliance
with Bulletin 43, and to discover any additional informa-
tion that possibly would be helpful in developing a
theory for accounting for stock dividends.

To the extent information was available in finan-
cial services and corporate annual reports, the method
of accounting for stock dividends was determined for a
number of companies within various groups, such as NYSE-
listed companies, unlisted companies, and financial
institutions. Several patterns developed from this

analysis.

115

NYSE-listed companies

An analysis of the accounting for stock dividends
distributed by companies listed on the New York Stock
Exchange indicated that, as could be expected, the
accounting was in compliance with the standards of the
New York Stock Exchange and that of the AICPA. Market
value was used as a transfer value. Retained earnings
was debited for the entire amount and capital surplus
was credited for the amount in excess of par or stated

value.

Unlisted stocks

The greatest deviation from Bulletin 43 was found
in the companies traded on the over-the-counter market.
This category also represented the greatest number of
companies distributing stock dividends. Because many of
these companies are small and little known, information
regarding the accounting for the issuance of stock divi-
dends by these companies was very limited. No attempt
was made to tabulate the results of the sample study.
Nevertheless, useful generalizations can be made.

Several companies used par value as a transfer
value in capitalizing retained earnings. Other com-
panies capitalized paid-in surplus rather than retained
earnings.

Commercial banks.--With few exceptions, common

 

116
stock of commercial banks is traded over—the-counter.

As indicated earlier in this chapter, the commer-
cial banking industry was the largest user of stock
dividends in 1961. The reason for this is probably due
to the fact that commercial banks' lending ability,
according to federal regulation, is based on the amount
of stockholders' capital.

All banks surveyed in this study accounted for
the issuance of stock dividends in the same manner. Par
value, rather than market value, was used to determine
the amount transferred to the capital account. This
is in line with federal regulation. All bank stock divi-
dends have to be approved by the Comptroller of the Cur-
rency. The application for approval must show the amount
and form of the dividend and the entry which will be
made to record it.1

The stockholders' equity section of a bank's bal-
ance sheet has a peculiar arrangement, somewhat different
from other corporations. Net income for the year is
closed to "undivided profits" and is then transferred to
the "surplus" account when a stock dividend is distri-
buted. The undivided profits account is equivalent to
the retained earnings account of a non-bank corporation
and the surplus account is equivalent to the paid-in

surplus account of a non-bank corporation. Stock

 

1Interview with Leonard L. Rynski, a Manager and
bank specialist of Arthur Andersen & Co., Detroit office.

117
dividends, therefore, are recorded by a transfer of

retained earnings to the paid-in surplus account.

Insufficient Earnings

Several companies in the unlisted industrial
category issued stock dividends in spite of a loss or
insufficient earnings for the year. As noted earlier
in this dissertation the requirement of sufficient
earnings to cover a stock dividend is no longer required

by the New York Stock Exchange and the AICPA.

Analysis of Reporting Practices

A second major source of information was the
annual volumes of Accounting Trends and Techniques In
Published Annual Reports published by the American Insti-
tute of Certified Public Accountants. These annual vol—
umes are surveys of reporting practices of 600 companies.
The same 600 companies, with a few exceptions, are
included in each year's survey. The purpose of the
publication is to "show the current trends in corporate
reports in such diverse accounting matters as the various
types of financial statements presented, their form and
terminology, and the accounting treatment accorded the

transactions and items reflected in the statements."1

 

1American Institute of Certified Public Accountants,
Accounting Trends and Techniques In Published Copporate
Annual Reports (ISth ed., New York: American Institute
of Certified Public Accountants, 1961), p. iii.

118

The AICPA provides no editorial comment or endorsement
of any of the practices reported, but simply reports
current practices for practicing accountants' informa-
tion and guidance.

Volumes 7 through 16 of Accounting Trends and
Techniques In Published Annual Reports covering the ten“
year period 1952 to 1961, were analyzed. Specifically,
the reporting practices regarding stock dividends and
stock splits were reviewed and tabulated. Stock splits
were included because of their close similarity and
relationship to stock dividends.

The classification of stock distributions as
between stock dividends and stock Splits, used in the
AICPA survey, is based entirely on the terminology
employed in the individual company reports. The AICPA
did not question or change the classifications reported
by the corporations.

Table 8 contains a tabulation of stock distribu-
tions by type of distribution and year for the 600
companies surveyed by the AICPA for the ten-year period
1952 to 1961. The stock distributions include stock
dividends, stock splits, and shares of stock in other
than the distributing company. The number of companies
distributing stock dividends, out of the 600 companies

snarveyed annually, ranges from a low of 65 in 1952 to
41:11.1x11960. The number of companies distributing stock

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120
of 59 in 1959. These figures include companies distri-
buting both stock dividends and stock splits in the same
year.

Table 9 contains a summary of the methods of
recording stock dividends reported in Table 8.

The method debiting retained earnings and credit-
ing capital surplus is the most widely used by the com-
panies surveyed. This method implies that the transfer
from retained earnings is at a value above par or stated
value. The AICPA survey did not consider the various
methods of transfer to the capital stock account.

The method debiting retained earnings indicates
the transfer to the capital account was made at par or
stated value. This method ranked second in frequency
of use. All other methods used by the companies in the
survey had limited use.

The method debiting retained earnings and capi-
tal surplus indicates that the transfer to the capital
stock account was made from retained earnings and capi-
tal surplus, rather than retained earnings alone.

The method debiting capital surplus was rarely
used by the companies surveyed. This method involves a
capitalization of capital surplus rather than retained
earnings. As a result, stated capital, made up of
capital stock and capital surplus, is not changed.

The method crediting capital surplus was rarely

used. This method involves a debit to the capital stock

121

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122
account and a credit to capital surplus, resulting from
the reduction of par or stated value and an increase in
the number of shares outstanding.

Table 10 summarizes the methods of reporting and
recording stock splits distributed by the companies
studied by the AICPA for the period 1952 to 1961. The
table consists of two parts. The first part reports the
stock splits that were not recorded by a journal entry.
Methods of reporting these stock splits to the stock-
holders included letters to the stockholders, notes
within the financial statements, and notes to the finan-
cial statements. Approximately half of all stock splits
distributed during this ten-year period were reported in
this manner.

The second part of Table 10 tabulates the number
of stock splits recorded by journal entries according
to five different methods of recording. As in the case
of stock dividends previously discussed, transfer value
methods were not included in this survey.

The methods of recording stock splits when a
journal entry is used are the same as those reported in
Table 9 for the recording of stock dividends. More than
half of the journal entries recording a stock split
involved a method debiting capital surplus. This method
utilizes a transfer from the capital surplus account to
the capital stock account. This method does not affect

the total stated capital of the corporation.

123

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CHAPTER VII

SUMMARY AND CONCLUSIONS

At the outset of this dissertation, it was
shown that each year more stockholders are affected by
the issuance of stock dividends, and that the problem
of adequately accounting for the issuance of stock divi-
dends is a serious one. It was the purpose of this
dissertation to study and evaluate the accounting treat-
ment of stock dividends in terms of present practice,
recommended procedure, and existing inadequacies. This
chapter contains, in part, recommendations of the author
based upon research for this dissertation.

In order to arrive at a proper accounting tech-
nique for the issuance of stock dividends it was con-
sidered necessary to review the development of accounting
theory regarding the issuance of stock dividends and the
regulatory and tax aspects of stock dividends. Because
correct accounting of any matter depends upon a solid
understanding of the problems involved, it was also
deemed necessary to review some of the major financial
aspects of stock dividends. Included in this latter

review were such topics as terminology, types of stock

124

125

dividends, purposes of stock dividends, and their issua
ance costs.

The review of the development of accounting
theory for the issuance of stock dividends showed that
the accounting profession has been slow in developing an
equitable method of accounting for the issuance of stock
dividends. Not only has the development of accounting
theory been inadequate but it probably has contributed
to the misunderstanding of stock dividends by the general
public. The accounting profession has not provided the
leadership in this vital area of financial management.

Research for this dissertation was conducted for
the purpose of determining the following: (1) the extent
of the accounting problems involved; (2) the adequacy of
existing procedures and theory of accounting; (3) the
existence of inconsistencies and special problems; and
(4) the basis for developing a satisfactory method for

accounting for the issuance of stock dividends.
Accounting Problems

In Chapter I of this dissertation, the following
accounting questions or problems were posed regarding
the issuance of stock dividends:

1. How much per share or in total is to be trans-
ferred to permanent capital, including the capital stock

account?

126

2. From which accounts should the amount be
transferred?

3. How should the cost of issuing the stock be
handled?

4. Is it proper to issue a stock dividend in
excess of current earnings?

5. What is the difference between a stock dividend
and a stock split?

As a result of analysis and study reported in this
dissertation, answers to these questions regarding
accounting for the issuance of stock dividends have been
formulated. It is proposed that the following conclusions

and recommendations be considered.
Review of Study Findings

Several conclusions can be arrived at on the
basis of findings of research reported in Chapter VI.
They are as follows:

1. Not all companies account for the distribution
of stock dividends in the same manner.

2. A majority (70.6%) of the companies issuing
stock dividends are companies whose stock is traded over-
the-counter, that is, unlisted. With the exception of
unlisted commercial banks, these companies' methods of
of accounting for stock dividends varied considerably.

3. One industry, commercial banking, is a large

127
user of the stock dividend device. Furthermore, its
method of accounting for stock dividends is consistent
within the industry but contrary to most of the other
companies and to the recommendations of the AICPA.

4. There is considerable confusion regarding the
accounting for a stock dividend and a stock split. The
accounting for stock splits often is similar to the
accounting for stock dividends.

5. Uniformity exists only among NYSE-listed com-
panies and among commercial banks. Even then these groups

differ from each other.
Recommendations

What is a stock dividend?

 

It is suggested that the concept of a stock divi-
dend should not exist. It is no more than a combination
of two steps: a stock split and a transfer to the capi-
tal stock account. It is possible and permissible for a
corporation to perform one or the other step independ-
ently or to perform both of them together.

Viewed in this manner, it is suggested that the
term "stock dividend" be abandoned, with no new term
taking its place. If this were done, the term "stock
split" could be used to describe all stock distributions
in a company's own shares. The elimination of a term so

widely associated and confused with the term stock split

128
would prove most beneficial. Because the outward effect
and result of the traditional stock dividend is the same
as that of a stock split the latter term could be soundly
and theoretically used for both types of distribution.

If a transfer to the capital stock account were
desired by management, this could take place in conjunction
with the stock distribution known as a stock Split.
Whether such transfer takes place or not, the effect on
the public, the stock market, and the investor is nil.

A transfer to the capital stock account without a
distribution of additional stock is allowed under most

existing state laws.

Full disclosure

 

It is suggested that greater disclosure of facts
be made to the public and to the stockholder regarding
stock distributions and the transfer of amounts to the
capital stock account. Both the corporation and the CPA
can do much to further full disclosure in this area.
Currently, many corporations are lacking in honesty in
dealing with stock distributions. The CPA is in a good
position to require more disclosure and to influence
corporations in this direction.

Corporations should be expected to explain care-
fully to the stockholder and to the general public, the

nature of a stock distribution, the reasons behind its

129
use and the expected benefits to be derived from it.
The stockholder should be told definitely what it is not,
that is, that it is not income to the recipient and should
not be construed as such. The stockholder should be fur-
ther told that when he sells any stock received in such
a distribution he is disposing of a part of his original
holdings in the corporation.

In the case of a transfer to the capital stock
account, whether or not accompanied by a stock distribu-
tion, stockholders should be informed as to the signifi-
cance and desirability of such action. They should be
told that the stated capital of the corporation is
increasing, the benefits or reasons behind this, and any
other implications.

Under existing practice it is rare for a corpora-
tion to label the amounts transferred to the capital
stock account in previous accounting periods. It is com-
mon practice to include previously capitalized amounts in
the capital stock account as an aggregate amount, with no
notation that a portion of the account resulted from a
transfer. The reader or analyst is not able to determine,
without considerable research, the amounts of capital
stock that resulted from an original contribution and the
amounts that resulted from the transfer from some other
stockholders' equity account.

It is proposed that the capital stock account be

130
subdivided into two sections to show continually in
subsequent balance sheets the amounts contributed and the
amounts capitalized.

The same holds true for the situations in which the
paid-in surplus account has been increased by a transfer
from retained earnings. When this is the case, the paid-
in surplus account on subsequent balance sheets should be
divided into two sections.

Freguency and size of stock
distributions

 

 

Corporations should be discouraged from issuing
small stock distributions at frequent intervals. Such
distributions are expensive and go only a short way in
accomplishing the legitimate purposes of a stock split,
that is, lower market price and wider ownership. Larger
distributions, infrequently made, better utilize the
stockholders' money and provide less opportunity for

misunderstanding by the general public.

What amount to transfer?

 

Wide latitude should be given corporation directors
in determining the amount to transfer to capital stock
accounts or the method to be used. Such a transfer
should be accomplished within a framework of certain
basic accounting rules or concepts. In the case of par

or stated value common stock, the aggregate amount in the

131
capital stock account should equal the number of shares
issued multiplied by the unit par or stated value.
Therefore, in the case of par or stated value stock the
minimum to be transferred to the capital stock account
is par or stated value.

In the case of no-par value stock without a stated
value, no limitations would apply. Any amount desig-
nated by the board of directors would be appropriate.
What accountsigother than

capital stocki should be
involved in the transfer?

 

 

It is proposed that a transfer should be permitted
to be made from ggy stockholders' equity account, other
than capital stock, that is, from retained earnings or
capital surplus. It is felt that the whole purpose
behind such a transfer to the capital stock account is
to increase the latter account. This is accomplished
successfully when the transfer is made from any other
stockholders' equity account.

It is further proposed that crediting the capital
surplus account accomplishes nothing and should be
avoided. All transfers should be made to the capital

stock account.

What transfer value to use?

Actually any method will be acceptable as long as,

132
in the case of par or stated value stock, the aggregate
par or stated value residing in the capital stock
account equals the unit par or stated value multiplied by
number of shares outstanding. In the case of no-par stock
without a stated value no restrictions would be imposed.
It must be noted that there are two variables used in
determining the aggregate amount of par or stated value
of capital stock: the number of shares outstanding and
the unit par or stated value. Therefore, a transfer to
the capital stock account may be made without distribut-
ing additional shares. Instead, the transfer can be
effected by an increase in the par or stated value for

each share outstanding.
The current earnings test

No consideration need be given to the amount of
current earnings to support a stock distribution or a
transfer to the capital stock account. In the case of
a transfer to the capital stock account, all that is
necessary is a sufficient amount in some other stock-
holders' equity account. In the case of a stock split,
without a transfer to the capital stock account, addi-
tional shares may be distributed without any regard to

current earnings or existing retained earnings.

133

Accounting for issuance
costs

 

It was shown in an earlier chapter that the costs
of issuing a stock dividend, such as legal, accounting,
postage, and clerical costs, can be significant. Con—
siderable controversy exists as to whether such costs
should be expensed or capitalized.

This problem has been discussed extensively in
conjunction with the Federal Income Tax. For a long time
these costs had been considered by the Internal Revenue
Service as deductible expenses, but more recently they
have been held by the Internal Revenue Service and the
courts to be non-deductible capital expenditures.

It is the opinion of this writer that such costs
should be considered an expense for the accounting period
rather than a capital expenditure. The expected or
actual benefits to be derived from a distribution of a
stock dividend are primarily short-run rather than long-
run or continuous. Stockholders are appeased temporarily
and the market price of the common stock is lowered for
a while until a growth in earnings carries the price to
a higher level. No new capital is raised and the corpo-
ration has not changed materially. More pieces of paper
represent an unchanged ownership of an unchanged corpora-
tion.

Costs of issuing a stock dividend are not in the

134
same category as organization costs of a new or expand-

ing corporation.
Relation to Law

All of the above recommendations would have to be
applied within the framework of law. Existing state
laws regarding stock dividends vary and are not always
in line with satisfactory accounting theory. The adoption
of some of the suggestions discussed in this chapter
would require changes in some state laws. Such changes,
however, are within the ability and influence of the

accounting profession.

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APPENDIX A

ACCOUNTING RESEARCH BULLETIN NO. 43,

CHAPTER 7, SECTION 81
STOCK DIVIDENDS AND STOCK SPLIT-UPS

1. The term stock dividend as used in this chapter
refers to an issuance by a corporation of its own common
shares to its common shareholders without consideration
and under conditions indicating that such action is
prompted mainly by a desire to give the recipient share-
holders some ostensibly separate evidence of a part of
their respective interests in accumulated corporate
earnings without distribution of cash or other property
which the board of directors deems necessary or desirable
to retain in the business.

2. The term stock split-up as used in this chapter
refers to an issuance by a corporation of its own common
shares to its common shareholders without consideration
and under conditions indicating that such action is
prompted mainly by a desire to increase the number of out-
standing shares for the purpose of effecting a reduction
in their unit market price and, thereby, of obtaining
wider distribution and improved marketability of the
shares.

 

3. This chapter is not concerned with the account-
ing for a distribution or issuance to shareholders of
(a) shares of another corporation theretofore held as an
investment, or (b) shares of a different class, or (c)
rights to subscribe for additional shares or (d) shares
of the same class in cases where each shareholder is
given an election to receive cash or shares.

 

1Committee on Accounting Procedure, Restatement and
Revision of Accounting Research Bulletins: Accounting
Research Bulletin No. 43 (New York: AmErican Institute
of Certified Public Accountants, 1953), pp. 49-54.

 

144

145

4. The discussion of accounting for stock dividends
and Split-ups that follows is divided into two parts.
The first deals with the problems of the recipient. The
second deals with the problems of the issuer.

As to the Recipient

 

5. One of the basic problems of accounting is that
of income determination. Complete discussion of this
problem is obviously beyond the scope of this chapter.
Basically, income is a realized gain and in accounting
is recognized, recorded, and stated in accordance with
certain principles as to time and amount.

6. In applying the principles of income determina-
tion to the accounts of a shareholder of a corporation,
it is generally agreed that the problem of determining
his income is distinct from the problem of income deter-
mination by the corporation itself. The income of the
corporation is determined as that of a separate entity
without regard to the equity of the respective share-
holders in such income. Under conventional accounting
concepts, the shareholder has no income solely as a
result of the fact that the corporation has income;
the increase in his equity through undistributed earn-
ings is no more than potential income to him. It is
true that income earned by the corporation may result
in an enhancement in the market value of the shares, but
until there is a distribution, division, or severance
of corporate assets, the shareholder has no income.

If there is an increase in the market value of his hold-
ings, such unrealized appreciation is not income. In
the case of a stock dividend or split-up, there is no
distribution, division, or severance of corporate assets.
Moreover, there is nothing resulting therefrom that the
shareholder can realize without parting with some of his
proportionate interest in the corporation.

7. The foregoing are important points to be con-
sidered in any discussion of the accounting procedures
to be followed by the recipient of a stock dividend or
split-up since many arguments put forward by those who
favor recognizing stock dividends as income are in sub-
stance arguments for the recognition of corporate income
as income to the shareholder as it accrues to the corpo-
ration, and prior to its distribution to the shareholder;
the acceptance of such arguments would require the aban-
donment of the separate entity concept of corporation
accounting.

8. The question as to whether or not stock dividends

146

are income has been extensively debated; the arguments
pro and con are well known.1 The situation cannot be
better summarized, however, than in the words approved by
Mr. Justice Pitney in Eisner v. Macomber, 252 U.S. 189,
wherein it was held that stock dividends are not income
under the Sixteenth Amendment, as follows:

 

"A stock dividend really takes nothing from the
property of the corporation and adds nothing to
the interests of the stockholders. Its property
is not diminished and their interests are not
increased . . . the proportional interest of each
shareholder remains the same. The only change is in
the evidence which represents that interest, the new
shares and the original shares together representing
the same proportional interests that the original
shares represented before the issue of the new ones."

9. Since a shareholder's interest in the corporation
remains unchanged by a stock dividend or split-up except
as to the number of share units constituting such interest,
the cost of the shares previously held should be allo-
cated equitably to the total shares held after receipt of
the stock dividend or split-up. When any shares are later
disposed of, a gain or loss should be determined on the
basis of the adjusted cost per share.

As to the Issuer

 

Stock Dividends

10. As has been previously stated, a stock dividend
does not, in fact, give rise to any change whatsoever in
either the corporation's assets or its respective share-
holders' proportionate interests therein. However, it
cannot fail to be recognized that, merely as a consequence
of the expressed purpose of the transaction and its
characterization as a dividend in related notices to share-
holders and the public at large, many recipients of stock
dividends look upon them as distributions of corporate
earnings and usually in an amount equivalent to the fair

 

 

1See, for instance, Freeman, "Stock Dividends and
the New York Stock Exchange," American Economic Review,
December, 1931 (pro), and Whitaker, "Stock Dividends,
Investment Trusts, and the Exchange," American Economic
Review, June, 1931 (con).

 

147

value of the additional shares received. Furthermore,

it is to be presumed that such views of recipients are
materially strengthened in those instances, which are by
far the most numerous, where the issuances are so small
in comparison with the shares previously outstanding that
they do not have any apparent effect upon the share mar—
ket price and, consequently, the market value of the
shares previously held remains substantially unchanged.
The committee therefore believes that where these circum-
stances exist the corporation should in the public inter-
est account for the transaction by transferring from
earned surplus to the category of permanent capitaliza—
tion (represented by the capital stock and capital surplus
accounts) an amount equal to the fair value of the addi-
tional shares issued. Unless this is done, the amount of
earnings which the shareholder may believe to have been
distributed to him will be left, except to the extent
otherwise dictated by legal requirements, in earned sur-
plus subject to possible further similar stock issuances
or cash distributions.

11. Where the number of additional shares issued as
a stock dividend is so great that it has, or may reason—
ably be expected to have, the effect of materially reduc-
ing the share market value, the committee believes that
the implications and possible constructions discussed in
the preceding paragraph are not likely to exist and that
the transaction clearly partakes of the nature of a stock
split-up as defined in paragraph 2. Consequently, the
committee considers that under such circumstances there
is no need to capitalize earned surplus, other than to
the extent occasioned by legal requirements. It recom-
mends, however, that in such instances every effort be
made to avoid the use of the word dividend in related
corporate resolutions, notices, and announcements and
that, in those cases where because of legal requirements
this cannot be done, the transaction be described, for
example, as a split-up effected in the form of a dividend.

 

12. In cases of closely-held companies, it is to be
presumed that the intimate knowledge of the corporations'
affairs possessed by their shareholders would preclude
any such implications and possible constructions as are
referred to in paragraph 10. In such cases, the committee
believes that considerations of public policy do not arise
and that there is no need to capitalize earned surplus
other than to meet legal requirements.

13. Obviously, the point at which the relative size
of the additional shares issued becomes large enough to
materially influence the unit market price of the stock
will vary with individual companies and under differing

148

market conditions and, hence, no single percentage can
be laid down as a standard for determining when capitali-
zation of earned surplus in excess of legal requirements
is called for and when it is not. However, on the basis
of a review of market action in the case of shares of a
number of companies having relatively recent stock dis-
tributions, it would appear that there would be few
instances involving the issuance of additional shares of
less than, say, 20% or 25% of the number previously out-
standing where the effect would not be such as to call
for the procedure referred to in paragraph 10.

14. The corporate accounting recommended in para-
graph 10 will in many cases, probably the majority,
result in the capitalization of earned surplus in an
amount in excess of that called for by the laws of the
state of incorporation; such laws generally require the
capitalization only of the par value of the shares issued,
or, in the case of shares without par value, an amount
usually within the discretion of the board of directors.
However, these legal requirements are, in effect, minimum
requirements and do not prevent the capitalization of a
larger amount per share.

Stock Split-ups

15. Earlier in this chapter a stock split-up was
defined as being confined to transactions involving the
issuance of shares, without consideration moving to the
corporation, for the purpose of effecting a reduction in
the unit market price of shares of the class issued and,
thus, of obtaining wider distribution and improved market-
ability of the shares. Where this is clearly the intent,
no transfer from earned surplus to capital surplus or
capital stock account is called for, other than to the
extent occasioned by legal requirements. It is believed,
however, that few cases will arise where the afore-
mentioned purpose can be accomplished through an issuance
of shares which is less than, say, 20% or 25% of the pre-
viously outstanding shares.

16. The committee believes that the corporation's
representations to its shareholders as to the nature of
the issuance is one of the principal considerations in
determining whether it should be recorded as a stock divi-
dend or a split-up. Nevertheless, it believes that the
issuance of new shares in ratios of less than, say, 20%
or 25% of the previously outstanding shares, or the fre-
quent recurrence of issuances of shares, would destroy
the presumption that transactions represented to be split-
ups should be recorded as split-ups.

149

Three members of the committee,_Messrs. Knight,
Calkins, and Mason, assented with qualification,
and one member, Mr. Wilcox, dissented to adoption
of section (B) of chapter 7.

 

Mr. Knight assents with the qualification that he
believes the section should recognize the propriety of
treating as income stock dividends received by a parent
from a subsidiary. He believes the section should have
retained from the original Bulletin No. 11 the statement,
"It is recognized that this rule, under which the stock-
holder has no income until there is a distribution,'divi-
sion, or severance, may require modification in some
cases, or that there may be exceptions to it, as, for
instance, in the case of a parent company with respect
to its subsidiaries. . . ."

Messrs. Calkins and Mason approve part one, but
believe part two is inconsistent therewith in that the
former concludes that a stock dividend is not income to
the recipient while the latter suggests accounting pro-
cedures by the issuer based on the assumption that the
shareholder may think otherwise. They believe it is
inappropriate for the corporate entity to base its
accounting on considerations of possible shareholder
reactions. They also believe that part two deals with
matters of corporate policy rather than accounting prin—
ciples and that the purpose sought to be served could be
more effectively accomplished by appropriate notices to
shareholders at the time of the issuance of additional
shares.

Mr. Wilcox dissents from the recommendations made
both as to the recipient and as to the issuer. He believes
that, with proper safeguards, stock dividends should be
regarded as marking the point at which corporate income
is to be recognized by shareholders, and denies that the
arguments favoring this view are in substance arguments
for the recognition of corporate income as income to the
shareholder as it accrues to the corporation. He believes
that the arguments regarding severance and maintenance of
proportionate interest are unsound, and cannot logically
be invoked as they are in this section, since they are
widely ignored with respect to distributions of secu—
rities other than common stock dividends. Mr. Wilcox
believes the recommendations as to the issuer are incon-
sistent with the rest of the section, involve arbitrary
distinctions, hamper or discourage desirable corporate
actions, result in meaningless segregation in the pro-
prietorship section of balance sheets, and serve no
informative purpose which cannot be better served by
explanatory disclosures. He therefore also dissents from

150

the omission of requirements for information and dis-
closures which were contained in the original Bulletin
No. 11 issued in September, 1941.

APPENDIX B

List of Accounting Textbooks Included in Survey
Reported in Table 1, Chapter II

Elementary

Bierman, Harold. Financial and Managerial Accounting;
An Introduction. New York: The Macmillan Com-
pany, 1963.

 

Black, Homer A., and Champion, John E. Accounting in
Business Decisions: Theory, Method and Use.
Englewood Cliffs, N. J.: Prentice-Hall, Inc.,
1961.

Finney, Harry A., and Miller, Herbert E. Principles of
Accounting. 6th ed. Englewood Cliffs, N. J.:
Prentice-Hall, Inc., 1963.

 

Holmes, Arthur W., Maynard, Gilbert P., Edwards, James
Don, and Meier, Robert A. Elementary Accounting.
Homewood, I11.: Richard D. Irwin, Inc., 1962.

Johnson, Arnold W. Elementary Accounting: An Introduc—
tion to Managerial and Professional Accounting.
4th ed. New York: Holt, Rinehart and Winston,
1962.

Mason, Perry, Davidson, Sidney, and Schindler, James S.
Fundamentals of Accounting. 4th ed. New York:
Henry Holt and Company, Inc., 1959.

Meigs, Walter B., and Johnson, Charles E. Accounting.
New York: McGraw-Hill Book Company, Inc., 1962.

Noble, Howard S., and Niswonger, C. Rollin. Accounting
Principles. 8th ed. Cincinnati: South-Western
Publishing Company, 1961.

Pyle, William W., and White, John Arch. Fundamental
Accounting Principles. 3rd ed. Homewood,Ill.:
Richard D. Irwin, Inc., 1963.

151

152

Seiler, Robert. Elementary Accounting: TheoryJ Tech-
niqpe, and Applications. Columbus 16, Ohio:
Charles E. Merrill Books, Inc., 1963.

Intermediate

Karrenbrock, Wilbert E., and Simons, Harry. Inter-
mediate Accounting: Comprehensive Volume. 3rd ed.
Cincinnati: South-Western Publishing Company, 1958.

Meigs, Walter B., Johnson, Charles E., and Keller, Thomas F.
Intermediate Accounting. New York: McGraw-Hill
Book Company, Inc., 1963.

 

Milroy, Robert R., and Walden, Robert E. Accounting
Theory and Practice: Intermediate. Cambridge,
Mass.: Houghton Mifflin Company, 1960.

Moyer, C. A., and Mautz, R. K. Intermediate Accounting:
A Functional Approach. New York: John Wiley &
Sons, Inc., 1962.

 

Advanced

Bedford, Norton M., Perry, Kenneth W., and Wyatt, Arthur R.
Advanced Accounting: An Organizational Approach.
New York: John Wiley & Sons, Inc., 1961.

Johnson, Arnold W. Advanced Accounting. Revised ed.
New York: Rinehart & Company, Inc., 1960.

Karrenbrock, Wilbert E., and Simons, Harry. Advanced
Accounting: Standard Volume. 3rd ed. Cincinnati:
South-Western Publishing Company, 1962.

 

Milroy, Robert R., Walden, Robert E., and Seawell, L.
Vann. Accounting Theory and Practice: Advanced.
Cambridge, Mass.: Houghton Mifflin Company, 1961.

Managerial

Anthony, Robert N. Management Accounting: Text and
Cases. Revised ed. Homewood, 111.: Richard D.
Irwin, Inc., 1960.

 

153

Hill, Thomas M., and Gordon, Myron J. Accounting:
A Management Approach. Revised ed. Homewood, I11.:
Richard D. Irwin, Inc., 1959.

Moore, Carl L., and Jaedicke, Robert K. Managerial
Accounting. Cincinnati: South-Western Publishing

Company, 1963.

 

Murphy, Mary E. Managerial Accounting. Princeton, N. J.:
D. Van Nostrand Company, 1963.

Smith, Charles Aubrey, and Ashburne, Jim G. Financial and
Administrative Accounting. 2d ed. New York:
McGraw-Hill Book Company, Inc., 1960.

Smith, Richard L. Management through Accounting. Engle-
wood Cliffs, N. J.: Prentice—Hall, Inc., 1962.

APPENDIX C

STATE CORPORATION STATUTES REGARDING

ISSUANCE OF STOCK DIVIDENDSl

Alabama

No dividend payable in shares of any class shall be
paid to the holders of shares of any other class unless
the certificate of incorporation so provides or unless
the holders of a majority of the shares in which the
dividend is to be made approve of the dividend (Sec. 55(e)).

Dividends may be paid in treasury shares reacquired
out of surplus (Sec.55(c)).

Dividends may be declared and paid in authorized
but unissued shares out of surplus. If the dividend is
payable in shares having a par value, an amount of sur-
plus equal to the aggregate par value of the shares
shall be transferred to stated capital. If the shares
are without par value, they shall be issued at a value
fixed by the board of directors, and an amount equal to
the aggregate value so fixed shall be transferred to
stated capital (Sec. 55(d)).

Alaska

Dividends may be declared and paid in a corpora-
tion's own shares out of any treasury shares. Dividends
may be declared and paid in a corporation's own author-
ized but unissued shares out of any surplus of the corpo-
ration subject to certain limitations (Sec. 10.05.204).

 

1Corporation Law Guide, "Domestic Corporation Laws:
Features," (New York: Commerce Clearing House, Inc.),
Vol. I.

154

155

Arizona

There is no statutory provision for stock dividends.

Arkansas

When the directors shall so determine, dividends
may be paid in stock (Sec. 64.605).

California

Stock dividends may be declared only out of earned
surplus, paid-in surplus, or surplus arising from the
reduction of stated capital, in which case notice shall
be given to stockholders receiving such dividends of the
source thereof (Sec. 1504).

Colorado

Dividends may be declared and paid in the corpora-
tion's own shares out of any treasury shares which have
been reacquired out of the corporation's surplus (Sec.
31-31-10).

Dividends may be declared and paid in the corpo-
ration's own authorized but unissued shares out of any
unreserved and unrestricted surplus of the corporation
subject to conditions stated in the statute (Sec. 31-31-
10).

No dividend payable in shares of any class shall be
paid to the holders of shares of any other class unless
the articles of incorporation so provide or such payment
is authorized by the affirmative vote or the written con-
sent of the holders of at least a majority of the outstand-
ing shares of the class in which the payment is to be
made (Sec. 31-31-10).

Connecticut

Dividends may be paid in the corporation's own
authorized but unissued shares. If a dividend is payable
in shares having par value, such shares shall be issued
at not less than the par value thereof and there shall be
transferred to stated capital at the time such dividend

156

is paid an amount of surplus at least equal to the aggre-
gate par value of the shares to be issued as a dividend
(Sec. 74(e)(1)).

If a dividend is payable in its own shares without
par value, such shares shall be issued at such stated
value as shall be fixed by the board of directors by
resolution adopted at the time such dividend is declared.
There shall be transferred to stated capital at the time
such dividend is paid, an amount of surplus equal to the
aggregate stated value so fixed in respect to such shares.
The amount per share so transferred to stated capital
Shall be disclosed to the shareholders receiving such divi-
dend concurrently with the payment thereof (Sec. 74(e)(2)).

No dividend payable in shares of any class shall
be paid to the holders of shares of any other class
unless the certificate of incorporation so provides or
such payment is authorized by the affirmative vote or
the written consent of the holders of at least a majority
of the voting power of the outstanding shares of the
class in which the payment is to be made (Sec. 74(f)).

A split-up or division of the issued shares of any
class into a greater number of shares of the same class
without increasing the stated capital of the corporation
shall not be construed to be a share dividend (Sec. 74(g)).

Delaware

 

Dividends may be paid in cash, in property or in
shares of capital stock, in case of shares with par
value at par, and in case of shares without par value,
at such price as may be fixed by the directors (Sec. 173).

District of Columbia

 

Dividends may be paid in shares of the corporation. If
payable in shares having a par value, such shares shall
be issued at the par value thereof, and there shall be
transferred to stated capital an amount of surplus equal
to the aggregate par value of the shares to be issued as
a dividend (Sec. 40).

If payable in shares without par value, such shares
shall be issued at such value as shall be fixed by the
board of directors by resolution, and there shall be
transferred to stated capital an amount of surplus equal
to the aggregate value so fixed in respect of such
shares, and the amount per share transferred to stated
capital shall be disclosed to the stockholders receiving
such dividends concurrently with payment thereof (Sec. 40).

157

A Split—up or division of issued shares into a
greater number of shares of the same class shall not be
construed to be a share dividend within the meaning of
the foregoing provisions (Sec. 40).

Florida

When the directors so determine dividends may be
paid in stock (Sec. 608.52).

Georgia

Dividends may be paid in its own shares of any
class on resolution of the board of directors. Any divi-
dend paid in stock of a special class shall be approved
by vote or written consent of two-thirds of the stock-
holders of the class to be issued as a dividend (Sec. 17).

If a stock dividend shall affect adversely any
right or preference of the holders of any class, the con-
sent of two-thirds of such adversely affected stockholders
shall be obtained by vote or in writing. A stock divi-
dend need not be made out of surplus or earnings, but a
deficit may not be created or increased thereby (Sec. 17).

Hawaii

Dividends may be paid in shares of the corporation
only from earned surplus or paid—in or contributed sur—
plus or other surplus of the corporation (Sec. 172—110).

In connection with the declaration of a dividend
in Shares without par value, the board of directors shall
determine the amount and type of surplus which shall be
capitalized by the issuance of such stock dividend (Sec.
172—46(d)).

Idaho

Stock dividends may be paid only from the surplus
of the aggregate of its assets over the aggregate of
its liabilities including in the latter the amount of
its capital stock. If the dividend is to be paid in par
value shares, the aggregate par value shall not exceed
the amount of that portion of the surplus transferred to
capital as payment for such shares (Sec. 30-130).

158

If the dividend is paid in shares having no par
value, the number of such shares may be fixed by the
board. No dividend payable in shares of any class shall
be paid to stockholders of any other class unless the
articles so provide or such payment is authorized by the
vote of the holders of a majority of the shares of the
class in which the payment is to be made (Sec. 30—130).

Illinois

Dividends may be paid in shares of the corpora-
tion. If payable in shares having a par value, such
shares shall be issued at the par value thereof, and
there shall be transferred to stated capital an amount
of surplus equal to the aggregate par value of the shares
to be issued as a dividend (Sec. 41).

If payable in shares without par value, such shares
shall be issued at such value as shall be fixed by the
board of directors by resolution, and there shall be
transferred to stated capital an amount of surplus equal
to the aggregate value so fixed in respect of such
shares, and the amount per share transferred to stated
capital shall be disclosed to the stockholders receiving
such dividends concurrently with payment thereof (Sec.
41).

The surplus transferred to capital upon payment of
a share dividend may be surplus arising from unrealized
appreciation in value, or revaluation, of assets. A
split-up or division of issued shares into a greater
number of shares of the same class is not to be construed
to be a share dividend within the meaning of the fore-
going provisions (Sec. 41).

Indiana

Dividends payable in shares of capital stock having
a par value shall (Sec. 12, as amended by Ch. 10, Laws
1959, effective July 20, 1959):

(1) Where the articles of incorporation do not
provide that such shares may be sold at less than
their par value, be paid at such value not less
than par as shall be fixed by the board of direc-
tors at the time such dividend is declared.

(2) Where the articles of incorporation provide
that such shares may be sold at less than their
par value, be paid at such value as shall be fixed
by the board of directors at the time such dividend
is declared.

159

Dividends payable in shares of capital stock having
no par value shall be paid at such value as shall be
fixed by the board of directors at the time such dividend
is declared (Sec. 12, as amended by Ch. 10, Laws 1959,
effective July 20, 1959).

No dividend shall be paid if the corporation is,
or is thereby rendered, insolvent or if its capital is
or thereby becomes impaired (Sec. 12, as amended by Ch.
10, Laws 1959, effective July 20, 1959).

No dividend payable in shares of any class shall
be paid to the holders of any other class unless provi-
Sion therefor is made in the articles or unless author-
ized by the affirmative vote or written consent of the
holders of a majority of the shares of the class in
which payment is to be made (Sec. 12).

In the absence of actual fraud in the transaction,
the value placed by the board of directors upon the
corporate assets in the event of a share dividend shall
be conclusive (Sec. 6(e)).

Iowa

The board of directors may declare and the corpo-
ration may pay dividends on its outstanding shares in
cash, property or in its own shares. No dividend, except
a dividend payable in its own shares, shall be declared
or paid out of surplus arising from unrealized apprecia-
tion in value, or revaluation, of assets (Sec. 41).

Kansas

Dividends may be paid in cash, in property, or in
shares of the capital stock, in case of shares with par
value at par, and in case of shares without par value at
such price as may be fixed by the directors (Sec. 17-
3506).

Kentucky

 

Dividends may be paid in shares of the corporation
(Sec. 271.185).

Louisiana

 

Dividends may be paid in shares of the corporation's

160

stock. If paid in par value shares, the aggregate of the
par value thereof may not exceed the amount of that por-
tion of the corporation's surplus which is transferred

to capital as payment for such shares; if paid in shares
without par value, the number of such shares shall be
fixed by the board of directors (Sec. 12:26(D)).

No dividend paid in shares of any class shall be
paid to stockholders of any other class, unless the
articles so provide, or such payment is authorized by
vote of holders of a majority of the shares of the class
in which the payment is to be made (Sec. 12:26(F)).

Maine

There is no statutory provision as to stock divi-
dends.

Maryland

A corporation may pay dividends with its own
shares of stock (Sec. 37).

The consideration for stock issued as a stock
dividend shall be deemed to be the capitalized surplus
of the corporation. The actual value of such considera-
tion shall be deemed to be an amount equal to the surplus
thereby capitalized (Sec. 20(h)).

When a stock dividend is payable in no par shares,
the board of directors shall fix the amount to be attrib-
uted to the stated capital with respect to such shares.
The amount fixed by the board shall be transferred from
surplus to stated capital at the time the dividend is
paid. There may be transferred from earned surplus to
capital surplus such additional amount as the board of
directors may determine. The amount per share transferred
to stated capital and to capital surplus must be dis-
closed to the stockholders receiving such dividend prior
to or concurrently with its payment (Sec. 37).

Dividends payable in shares of one class of its
own shares may be declared or paid to the holders of
shares of another class if the payment thereof has been
authorized by the board of directors pursuant to the
charter or has been approved at a meeting of the stock—
holders by the affirmative vote of a majority of all the
votes of each class entitled to vote (Sec. 37).

161

Massachusetts

There is no statutory provision as to stock divi-
dends.

Michigan

 

Dividends may be paid in obligations of the corpo-
ration or 1J1 shares. iNo stock dividend from shares
without par value shall be declared unless there be trans-
ferred to capital at least the equivalent in value per
share of such dividends as equals the average original
consideration per share of the shares without par value
outstanding at the time of such declaration which is
carried as capital (Sec. 450.22).

Minnesota

A corporation may declare stock dividends out of
earned surplus or out of paid-in surplus and notice of
such fact must be given to shareholders receiving such
dividends (Sec. 301.22(3)).

An amount of surplus shall be capitalized equal to
aggregate par value of par shares so declared, or equal
to the amount to which preferred Shares without par value
so declared are entitled to preference on involuntary
liquidation, or equal to the fair value, as determined
by the directors on allotment, of common no-par shares
so declared (Sec. 301.22(3)).

No dividend payable in Shares of any class shall
be paid to shareholders of any other class, unless the
articles so provide or such payment is authorized by
vote or written consent of the holders of two-thirds of
the shares of the class in which the payment is to be
made (Sec. 301.22(3)).

Mississippi

 

Dividends may be declared and paid in its own
shares out of any treasury shares that have been reac-
quired out of surplus of the corporation (Sec. 42).

Dividends may be declared and paid in its own
authorized but unissued shares out of any unreserved and
unrestricted surplus of the corporation upon the follow-
ing conditions:

162

(1) If a dividend is payable in its own shares
having a par value,such shares shall be issued at not
less than the par value thereof. There shall be trans-
ferred to stated capital at the time such dividend is
paid an amount of surplus at least equal to the aggregate
par value of the shares to be issued as a dividend.

(2) If a dividend is payable in its own shares with—
out par value, such shares shall be issued at such stated
value as shall be fixed by the board of directors by
resolution adopted at the time such dividend is declared.
There shall be transferred to stated capital at the time
such dividend is paid an amount of surplus equal to the
aggregate stated value so fixed in respect of such
shares. The amount per share so transferred to stated
capital shall be disclosed to the shareholders receiving
such dividend concurrently with the payment thereof (Sec.
42).

No dividend payable in shares of any class shall
be paid to the holders of shares of any other class
unless the articles of incorporation so provide or such
payment is authorized by the affirmative vote or the
written consent of the holders of at least a majority
of the outstanding shares of the class in which the pay-
ment is to be made (Sec. 42).

Missouri

 

Dividends may be paid in the shares of the corpo-
ration. If payable in shares having a par value, such
shares shall be issued at the par value thereof and
there shall be transferred to stated capital an amount
of surplus equal to the aggregate par value of the shares
to be issued as a dividend (Sec. 351.220).

If payable in shares without par value having a
preferential right in the assets in case of involuntary
liquidation, such shares shall be issued at the liquida-
tion value thereof, and there shall be transferred to
stated capital an amount of surplus equal to the aggre-
gate liquidation value of such shares. If payable in
shares without par value not having a preferential right
in the assets in case of involuntary liquidation, such
shares shall be issued at such value as shall be fixed
by the board of directors by resolution and there shall
be transferred to stated capital an amount of surplus
equal to the aggregate value so fixed in respect of such
shares and the amount per share transferred to stated
capital shall be disclosed to the shareholders receiving
such digidends concurrently with payment thereof (Sec.
351.220 .

163

Montana

There is no statutory provision relating to the
issuance of stock dividends.

Nebraska

 

Dividends may be paid in cash, in property, or
in shares of the capital stock (Sec. 21-179).

Nevada

When the directors shall so determine, dividends
may be paid in stock (Sec. 78.290).

New Hampshire

 

There is no statutory provision relating to stock
dividends.

New Jersey

Dividends may be declared and paid in capital stock
with or without par value (Sec. 14:8-20).

New Mexico

 

There is no statutory provision relating to stock
dividends.

New York

A corporation may make pro rata distributions of
its authorized but unissued shares to holders of any
class or series of its outstanding shares, subject to
certain conditions (Sec. 511(a)).

If a distribution of shares having a par value is
made, such shares shall be issued at not less than the
par value thereof (Sec. 511(a)(1)). .

164

If a distribution without par value is made, the
amount of stated capital to be represented by each such
share shall be fixed by the board, unless that right is
reserved to the shareholders (Sec. 511(a)(2)).

A distribution of shares of any class or series
may be made only to holders of the same class or series
of shares unless the certificate of incorporation permits
distribution subject to the preemptive rights of holders
of any outstanding shares to holders of another class or
series or unless such distribution is authorized, when
there are no outstanding preemptive rights, by the affirm-
ative vote or the written consent of the holders of a
majority of the outstanding shares of the class or series
to be distributed (Sec. 511(a)(3)).

North Carolina

 

Subject to certain limitations, the board of
directors of the corporation may declare and pay divi-
dends in its own authorized but unissued shares out of
any surplus of the corporation. If paid in shares with
par value, there shall be transferred to stated capital
an amount of surplus equal to the aggregate par value of
shares to be issued as a dividend. If paid in Shares
without par value, there shall be transferred an amount
equal to the aggregate value as determined by the board
of directors, and the amount per share so transferred
shall be disclosed to the stockholders (Sec. 55-51).

North Dakota

 

Dividends may be declared and paid in a corpora-
tion's own shares out of any treasury shares. Dividends
may be declared and paid in a corporation's own author-
ized but unissued shares out of unreserved and unre-
stricted surplus of the corporation subject to certain
limitations (Sec. 10-1944).

Ohio

Dividends may be paid in treasury shares or in
authorized but unissued shares of the corporation. If
paid in shares with par value, there shall be trans-
ferred from surplus to stated capital, any amount neces-
sary in order that the stated capital represented by the
outstanding shares with par value, after giving effect
to such dividend, will be equal to the aggregate par

165

value of such shares, or if the directors so determine
a greater amount shall be transferred. If the divi-
dend is paid in shares without par value, there shall
be transferred from surplus to stated capital only such
amount, if any, as the directors determine (Sec. 1701.
33).

Oklahoma

 

Dividends may be paid in the shares of the corpo-
ration only upon a resolution of the board of direc-
tors. If shares of one class are used to pay a share
dividend on shares of another class, then such dividend
shall also be approved by a vote or written consent of
the holders of a majority of the shares entitled to vote,
and the majority of the shares, if any, of the class
to be allotted as a dividend, irrespective of whether
the shareholders of such class are entitled to vote.
Such approval may be in the form of a bylaw sanctioned
by such vote, or consent. Any such bylaw shall only be
effective for one year. Upon such declaration of a
share dividend, notice shall be given to the share-
holders of the amount per share transferred from sur-
plus to stated capital, and of the particular surplus
from which such amount was transferred (Sec. 1.134).

Oregon

Dividends may be declared and paid in its own
shares out of any treasury shares. Dividends may be
declared and paid in its own authorized but unissued
shares out of any surplus of the corporation subject to
certain limitations (Sec. 57.216).

Pennsylvania

 

Dividends may be declared and paid in a corpo-
ration's own shares out of any treasury shares and also
out of its own authorized but unissued Shares (Sec.

702.1 .

If distribution is made in its own authorized but
unissued shares having a par value, there shall be trans-
ferred to stated capital an amount of surplus at least
equal to the aggregate par value of the shares so issued
(Sec. 702.1).

If a distribution is made in its own authorized

166

but unissued shares without par value, the directors may
fix a stated value for the Shares so issued and there
shall be transferred to stated capital at the time of
such distribution an amount of surplus equal to the
aggregate stated value so fixed (Sec. 702.1).

Rhode Island

There is no statutory provision relating to stock
dividends, except that capital shall include such
amount as shall have been transferred from surplus to
capital on the declaration of a dividend payable in
shares without par value (Sec. 7-3-21).

South Carolina

 

There is no statutory provision as to stock divi-
dends.

South Dakota

 

The capital stock may be distributed as stock
dividends when the surplus is sufficient (Sec. 11.0706).

Tennessee

 

A corporation may issue either common or preferred
stock as a dividend, provided it has a surplus or undi-
vided profits equal in value, at a fair valuation, to
such stock issued as a dividend, and provided that the
surplus or undivided profits is reduced in an amount
equal to the par value of the stock issued as a stock
dividend (Sec. 48-708).

Texas

Dividends may be declared and paid in a corpo—
ration's own shares out of any treasury shares that have
been reacquired out of surplus of the corporation. Divi-
dends may be declared and paid in a corporation's own
authorized but unissued shares out of unrestricted sur-
plus of the corporation subject to certain limitations
(Art. 2.38).

167

Utah

Dividends may be declared and paid in its own
shares out of any treasury shares that have been reac-
quired out of surplus of the corporation (Sec. 41(c)).

Dividends may be declared and paid in its own
authorized but unissued shares out of any unreserved and
unrestricted surplus of the corporation upon the follow-
ing conditions:

(1) If a dividend is payable in its own Shares
having a par value, such shares shall be issued at not
less than the par value thereof and there shall be
transferred to stated capital at the time such dividend
is paid an amount of surplus at least equal to the
aggregate par value of the shares to be issued as a divi-
dend.

(2) If a dividend is payable in its own shares
without par value, such shares Shall be issued at such
stated value as shall be fixed by the board of directors
by resolution adopted at the time such dividend is
declared. There shall be transferred to stated capital
at the time such dividend is paid an amount of surplus
equal to the aggregate stated value so fixed in respect
of such shares. The amount per share so transferred to
stated capital shall be disclosed to the shareholders
receiving such dividend concurrently with the payment
thereof (Sec. 41(d)).

No dividend payable in shares of any class shall
be paid to the holders of Shares of any other class
unless the articles of incorporation so provide or such
payment is authorized by the affirmative vote or the
written consent of the holders of at least a majority
of the outstanding shares of the class in which the pay-
ment is to be made (Sec. 41(e)).

Vermont

There is no statutory provision relating to stock
dividends.

Virginia

 

Dividends may be declared and paid in a corpo-
ration's own shares out of any treasury shares reac-
quired out of surplus, or in its own authorized but
unissued shares out of any unreserved or unrestricted
surplus subject to limitations (Sec. 13.1—43).

168

Washington

Share dividends may be paid only from the surplus
of the aggregate of its assets over the aggregate of its
liabilities including in the latter the amount of its
capital stock (Sec. 23.01.250).

If the dividend is to be paid in par value shares,
the aggregate par value shall not exceed the amount of
that portion of the surplus transferred to capital as
payment for such shares. If the dividend is paid in
shares having no par value, the number of such shares
may be fixed by the board. No dividend payable in
shares of any class shall be paid to shareholders of
any other class unless the articles so provide or such
payment is authorized by the vote of the holders of a
majority of the shares of the class in which the payment
is to be made (Sec. 23.01.250).

West Virginia

Shares may be issued and distributed as a divi-
dend against the accumulated earnings or surplus and
the consideration for shares so issued shall be taken
to be the capitalization thereby of the surplus or net
profits and the actual value of such consideration
shall be an amount equal to the surplus or net profits
thereby capitalized (Sec. 20).

Wisconsin

Dividends may be declared and paid in the corpo-
ration's treasury stock, or authorized, unissued stock,
out of any unreserved earned surplus or net capital
surplus of the corporation, subject to certain restric-
tions (Sec. 180.38).

wyoming

If a dividend is payable in its own shares having
a par value, such shares shall be issued at not less
than the par value thereof. There shall be transferred
to-stated capital at the time such dividend is paid
an amount of surplus at least equal to the aggregate
par value of the shares to be issued as a dividend
(Sec. 39).

If a dividend is payable in its own shares

169

without par value, such shares shall be issued at such
stated value as shall be fixed by the board of directors.
There shall be transferred to stated capital an amount
of surplus equal to the aggregate stated value so fixed
in respect of such shares. The amount per share so
transferred to stated capital shall be disclosed to the
shareholders receiving such dividend concurrently with
the payment thereof (Sec. 39).

No dividend payable in shares of any class shall
be paid to the holders of shares of any other class
unless the articles so provide or such payment is
authorized by the affirmative vote or the written con-
sent of the holders of at least a majority of the out-
standing shares of the class in which the payment is
to be made (Sec. 39).

APPENDIX D

Text of Model Business Corporation_Act
Pertaining to Stock DividendsI

Section 40. Dividends

The board of directors of a corporation may,
from time to time, declare and the corporation may pay
dividends on its outstanding shares in cash, property,
or its own shares, except when the corporation is insol-
vent or when the payment thereof would render the corpo-
ration insolvent or when the declaration or payment
thereof would be contrary to any restrictions contained
in the articles of incorporation, subject to the follow-
ing provisions:

(c) Dividends may be declared and paid in its own
shares out of any treasury shares that have been reac—
quired out of surplus of the corporation.

(d) Dividends may be declared and paid in its
own authorized but unissued shares out of any unre-
served and unrestricted surplus of the corporation
upon the following conditions:

(1) If a dividend is payable in its own Shares
having a par value, such shares shall be issued at not
less than the par value thereof and there shall be
transferred to stated capital at the time such divi-
dend is paid an amount of surplus at least equal to
the aggregate par value of the shares to be issued as
a dividend.

(2) If a dividend is payable in its own shares
without par value, such shares shall be issued at such
stated value as shall be fixed by the board of direc—
tors by resolution adopted at the time such dividend
is declared, and there shall be transferred to stated

 

1Committee on Corporate Laws (ed.), Model Busi-
ness Corporation Act Annotated, A Research Project of
the American Bar Foundation, Vol. III (St. Paul, Minn.:
West Publishing Company, 1960), pp. 28-29.

 

170

171

capital at the time such dividend is paid an amount of
surplus equal to the aggregate stated value so fixed

in respect of such shares; and the amount per share so
transferred to stated capital shall be disclosed to the
shareholders receiving such dividend concurrently with
the payment thereof.

(e) No dividend payable in shares of any class
shall be paid to the holders of shares of any other
class unless the articles of incorporation so provide
or such payment is authorized by the affirmative vote
or the written consent of the holders of at least a
majority of the outstanding shares of the class in
which the payment is to be made.

A split-up or division of the issued shares of
any class into a greater number of shares of the same
class without increasing the stated capital of the
corporation shall not be construed to be a share divi-
dend within the meaning of this section.

APPENDIX E

COMPANIES ISSUING STOCK DIVIDENDS IN 19611

 

 

 

 

Industrial
Size of
Name of Company Exchange Dividend (%)

A. B. C. Vending NYSE 2
Acme Industries, Inc. Unl 5
Addressograph-Multigraph Corp. NYSE 2
Addison-Wesley Publish. Co., Inc. Unl 5
Advance Ross Electron. Corp. MSE 1, 3
Aeroquip Corp. NYSE 2
Air Metal Industries, Inc. Unl 5
Air Products, Inc. NYSE 3
Airwork Corp. Unl 3
Alarm Device Mfg. Co., Inc. Unl 25
Alden's Inc. NYSE 5
Allied Petro-Products, Inc. Unl 2
Allied Radio Corp. Unl 2
Alsco, Inc. ASE 2, 2
Amerace Corp. NYSE 4, 1, 1,
American Art Metals Co. Unl 5
American Biltrite Rubber Co., Inc. Unl 4
American Broadcasting-Paramount

Theaters, Inc. NYSE 2
American Consumer Ind. NYSE 2
American Cryogenics, Inc. Unl 100
American Dryer Corp. Unl 2

 

1This list is limited to companies in the United
States declaring and issuing stock dividends in 1961.
It does not include stock dividends paid on different
classes of stock, dividends in stock of other companies,
or stock splits.

Source: Moody's Dividend Record: Annual Cumu-
lative for 1961 (Neerork: Moody's Investors Service,
1962), and Standard & Poor's Dividend Record: 1961
Annual Dividend Record (New York: Standard & Poor's
Corporation7w1962).

172

173

 

 

Size of
Name of Company Exchange Dividend (%)

American Duralite Corp. Unl 4
American Electronic Labs, Inc. Unl 10
American Laboratories, Inc. Unl 2
American Maize Products Co. Unl 5
American Motors Corp. NYSE 2
American Seal-Kap Corp. ASE 3, 2
American Ship Building Co. NYSE 5
American Stores Co. NYSE 5
American Vitrified Products Co. Unl 4
Ameridan Zinc, Lead & Smelt. NYSE 3
Anglo Amer. Explora. Ltd.

(Canada) ASE 3
Applied Physics Corp. Unl 100
Arkansas Valley Industries Unl 2
Arnold Constable Corp. NYSE 4
Arrowhead & Puritas Water, Inc. Unl 100
Asgrow Seed Co. Unl 20
Aunt Jane's Food, Inc. Unl 4
Aurora Plastics Corp. ASE 5
Austin Nichols & Co. NYSE 5
Automatic Canteen Co. of America NYSE 1
Automatic Radio Mfg. ASE 4
Automotive Parts Co. Unl 5
Avondale Mills Unl 10
Ayers (L. S.) & Co. Unl 2
Ayrshire Collieries Corp. ASE 2
Aztec Oil & Gas CO. Unl 8
B-S-F Co. ASE 1%, 1%,

13:, 1‘0
Baker 011 Tools, Inc. NYSE 4
Barber Oil Corp. NYSE 2, 2
Barden Corp. Unl 3
Bargain City U.S.A., Inc. Unl 3
Barton's Candy ASE 1, 1
Beam (J. B.) Distilling Co. Unl 1, l, 2
Beech Aircraft Corp. NYSE 2
Bell and Howell Co. NYSE 2%
Beryllium Corp. Unl 3
Bessemer Limestone & Cement Co. Unl 2
Bestwall Gypsum NYSE 3
Big Bear Stores Co. Unl 3%
Bird & Son, Inc. Unl 1
Bishop & Babcock Mfg. Unl 5
Blackman Merchandising Corp. Unl 100
Blaw-Knox NYSE 2%
Blossman Hydratane Gas, Inc. Unl 10
Booth Fisheries Corp. MSE 5
Boston Herald-Traveler Corp. Unl 5
Bourns, Inc. Unl 50

174

Size of
Dividend (%)

 

 

Name of Company Exchange
Bowling Corp. of America ASE
Bowmar Instrument Corp. Unl
Bradley (Milton) Company, Mass. Unl
Brewer (C.) & Co., Ltd. (Hawaii) HON
Brockway Glass Co. Unl
Broughton's Farm Dairy, Inc. Unl
Brown-Forman Distillers Corp. ASE
Bruce (E. L.) Co. Incorporated ASE
Bruning (Charles) Co., Inc. Unl
Burgmaster Corp. Unl
Butler's Shoe Corp. ASE
California Consumers Corp. Unl
Calif. Corp. for Biochemical

Research Unl
California Liquid Gas Corp. Unl
Carnation Co. ASE
Carpenter (L. E.) & Co. Unl
Carwin Co. Unl
Centennial Turf Club Unl
Central Soya NYSE
Century Industries Co., Inc. NYSE
Cerro Corp. NYSE
Certain-Teed Products Corp. NYSE
Chamberlin Co. of America ASE
Chemical Products Corp. Unl
Chesapeake Corp. of Va. NYSE
Chromalloy Corp. ASE
City Products Corp. NYSE
Clark Oil & Refinery Corp. Unl
Clarostat Mfg. Co., Inc. ASE
Click Chemical Corp. Unl
Clifton Precision Prod. Co., Inc. Unl
Colonial Corp. of America ASE
Colonial Sand & Stone Co., Inc. ASE
Columbia Broadcasting System, Inc. NYSE
Columbia Pictures Corp. NYSE
Commercial Solvents Corp. NYSE
Components Corp. of America Unl
Computer Equipment Corp. Unl
Construction Products, Inc. ASE
Continental Copper & Steel

Industries, Inc. NYSE
Continental Vending Mach. Corp. ASE
Cook Coffee Company Unl
Corson (G. & W. H.), Inc. Unl
Crescent Petroleum Corp. NYSE
Crestmont Consolidated Corp. ASE
Crowell-Collier Publish. Co. NYSE
Cummins Engine Co., Inc. Unl

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175

Name of Company

Curlee Clothing Co.
Curtis Industries, Inc.

D. W. G. Cigar Corporation
Deltown Foods, Inc.

Diebold, Inc.

Dillon J. S. & Sons Stores Co.
Dixon-Powdermaker Furniture Co.
Donnelley (R. R.) & Sons Co.
Dorsett Electronics, Inc.
Doughboy Industries, Inc.

Dover Corp.

Dunhill International, Inc.
Dunlap & Associates, Inc.
Duro-Test Corp.

Dynalectron Corp.

Eastern Bowling Corp.
Economy Auto Stores Inc.
Edgecomb Steel Co.
Edison Bros. Stores,
Edo Corp.
Elastic Stop-Nut Corp.
Electro Networks, Inc.
Electronic Assistance Corp.
Electronic Associates, Inc.
Electronic Engineering Co. of
California
Elox Corp. of Michigan
Emerson Electric Mfg. Co.
Emhart Mfg. Co.
Empire National Corp.

Inc.

Emporium Capwell Co.
Epps Industries, Inc.
Erie Resistor Corp.
Esquire, Inc.
Ets-Hokin & Galvan,
Evans Rule Co.

(Calif.)

Inc.

Fabien Corp.

Factor, Max & Co.
Farrell-Birmingham Co.,
Fedders Corp.

Federal Sign & Signal Corp.
Federal Steel Corp.
Fed-Mart Corp.

Firestone Tire & Rubber Co.
First Flight Co.

Inc.

Exchange

Size of

 

 

Unl
Unl

NYSE
Unl
Unl
Unl
Unl
Unl
Unl
Unl
NYSE
NYSE
Unl
ASE
ASE

Unl
Unl
Unl
NYSE
ASE
NYSE
Unl
ASE
Unl

Unl
Unl
NYSE
Unl
ASE

PCSE
Unl
Unl
ASE
Unl
Unl

Unl
NYSE
Unl
NYSE
Unl
Unl
Unl
NYSE
Unl

Dividend (%)

U101

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1%, 1%,

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176

Name of Company

First National Credit Bureau,

Inc.

Fischbach & Moore, Inc.
Fischer & Porter Co.
Flexible Tubing Co.
Florida Steel Corp.

Fluor Corp., Ltd. (Calif.)
Food Giant Markets, Inc.
Forest Laboratories, Inc.

Fort Worth Steel & Machinery Co.

Foster-Forbes Glass Co.
Foster Grant Co., Inc.
Foster Wheeler Corp.
Fownes Bros. & Co., Inc.
Franklin Electric Co.
Friden, Inc.

Frontier Refining Co.

Gabriel Co.
Garrett Corp.
General Abrasive Co., Inc.
Gen. Amer. Oil of Texas
General Bronze Corp.
General Foam Corp.
General Merchandise Co.
waukee, Wisc.)
Georgia Marble Co.
Georgia Pacific Corp.
Gertsch Products, Inc.
Gilchrist Co.
Gilmore Industries, Inc.
Globe Security Systems,
Godfrey Co.
Goodyear Tire & Rubber Co.
Grace (W. R.) & Co.
The Grand Union Co.
Grayson-Robinson Stores
Great Atlantic
Grinnell Corp.
Gulf Oil Corp.
Gulf & Western Industries,
Haag Drug Co., Inc.
Hagan Chemicals & Controls,
Hallicrafters Co.
Hammermill Paper Co.
Handmacher-Vogel, Inc.
Harper (H. M.) Co.
Harrington & Richardson,
Hartfield Stores Inc.

(N.

(N. Y.

)

(of M11-

Inc.

(Ohio)

& Pacific Tea Co.

Inc.

Inc.

Inc.

Exchange

Size of
Dividend (%)

 

 

J.)

Unl
Unl
ASE
Unl
Unl
NYSE
NYSE
Unl
Unl
Unl
Unl
NYSE
Unl
Unl
NYSE
Unl

NYSE
NYSE
Unl
NYSE
NYSE
Unl

Unl
Unl
NYSE
Unl
ASE
Unl
ASE
Unl
NYSE
NYSE
NYSE
NYSE
NYSE
Unl
NYSE
ASE

Unl
Unl
Unl
NYSE
Unl
Unl
Unl
ASE

N

H

2, 2,
6

2

2, 3
5

5

2, 2
4

3

3

4

5

5

3, 3
2

10

5

2

5

3

2

5

4, 1
235
1, 1,
5

5

3, 25
25

5

2

2

3

5

3

5

2

5

3

2
100

2
50, 1
2
100
18, 1%,
132, D2

177

 

 

Size of
Name of Company Exchange Dividend (%)

Hat Corp. of America NYSE 8
Hauserman (E. F.) Co. Unl 1, l
Hawaiian-Philippine Co. HON 33%
Hawley Products Co. Unl 2
Hein-Werner Corp. MSE 5
Henry's Drive-In, Inc. Unl 5
Heublein, Inc. Unl 3
Hickok Electrical Instrument Co. Unl 3
Hidden Splendor Mining Co. Unl 5
High Voltage Engineering Unl 3
Hill's Supermarket, Inc. ASE 5
Hirsch (P. N.) & Co. Unl 2
Hollingshead (R. M.) Corp. Unl 100
Honeggers' & Co., Inc. Unl 1%, 1%
Honolulu Iron Works Co. (Hon.) Unl 5
Houdaille Industries, Inc. NYSE 2
Howard Industries, Inc. MSE 2
Howe Sound Co. NYSE 3, 3
Howell Elec. Motors Co. (Mich.) ASE 5
Hudson Vitamin Products, Inc. ASE 25
Hunt Foods & Ind., Inc. NYSE 5
Hupp Corp. NYSE 3
Huston (Tom) Peanut Co. (Ga.) Unl 5
Hutchinson (W. H.) & Sons, Inc.

(111.) Unl 2%
Hygrade Food Products Corp. ASE 2
Illinois Lock Co. (111.) Unl 2
Industrial Electronic Hdwe. Corp. ASE 3
Industrial Plywood Co. ASE 2
International Paper Co. NYSE 2
International Silver NYSE 2%
Interstate Dept. Stores, Inc. NYSE 5
Interstate Engineering Corp. Unl 25
Interstate Hosts, Inc. Unl S, 33%
Iron Fireman Mfg. Co. (Oregon) ASE 3
Irvington Steel & Iron Works Unl 3
J. C. S. Electric Co. Unl 5
Jantzen, Inc. Unl 4
Jeannette Glass Co. ASE 3
Jessop Steel Co. Unl 5
Junction Bit & Tool Co. Unl 5, 5
Katz Drug Co. ASE 2
Kawecki Chemical Co. ASE 2
Kayser-Roth Co. NYSE 2
Kent-Moore Organization, Inc. Unl 5
Keyes Fibre Co. Unl 2
Kidde (Walter) & Co., Inc. ASE 5

178

 

 

 

Size of

Name of Company Exchange Dividend (%)
Kimberly-Clark Corp. NYSE 2
King Bros. Productions, Inc. Unl 7
Kings Dept. Stores, Inc. Unl 2
Kingsport Press, Inc. Unl 3
Kingwood Oil Co. Unl 4
Klein (5.) Dept. Stores, Inc. ASE 5
Kulka Smith Electronics Corp. ASE l, l, 2
Lamb Industries, Inc. ASE 4
Lancer Industries, Inc. Unl 4
Lanolin Plus, Inc. Unl 2
Lanston Industries, Inc. ASE 2
Layne & Bowler Pump Co. (Calif.) Unl 200
Leetronics, Inc. Unl 2
Lemke (B. L.) & Co., Inc. (N. J.) Unl 5
Leonard Refineries, Inc. NYSE 3
Lester Engineering Co. Unl 5
Le Tourneau (R. G.) Inc. ASE l, l, 1,
Levine's, Inc. Unl 4
Lewers & Cooke Ltd. HON 5
Lewis Business Forms, Inc. Unl 5
Liberty Fabrics of N. Y., Inc. ASE 5, 5
Lipe-Rollway Corp. Unl 2
Liquidometer Corp. Unl 2
Litton Industries, Inc. NYSE 2%
Livingston Oil Co. Unl 10
Lodding Engineering Corp. Unl 3
Long Mile Rubber Corp. Unl 2
Longines-Wittnauer Watch Co., Inc. ASE 2
Los Angeles Drug Co. Unl 2
Lucky Stores, Inc. Unl 3
Lynch Corp. ASE 3
MacFadden Publications, Inc. ASE 2
Magma Copper Co. NYSE 5
Majestic Specialties, Inc. ASE 3
Mallory (P. R.) & Co., Inc. NYSE 2
Manhattan Shirt Co. NYSE 2
Market Basket Unl 3
Marquette Corp. Unl 6
Marsh Supermarkets, Inc. Unl 2
Maryland Cup Corp. ASE 3
Masco Corp. DSE 100
Masonite Corp. NYSE 2
Matheson Co., Inc. Unl 3
Matthiessen & Hegeler Zinc Co. Unl 4
Maul Bros., Inc. Unl 2
McCall Corp. NYSE 3
McDermott (J. Ray) & Co. NYSE 2
McKay Machine Co. MSE 10

179

 

 

 

Size of
Name of Company Exchange Dividend (%)

McNeil Machine & Engineering Co. Unl S
McQuay, Inc. Unl 5
Mergenthaler Linotype Co. NYSE 1
Metal Goods Corp. Unl 2
Microdot, Inc. Unl 2
Millers Falls Co. Unl 5
Minerals & Chemicals Philipp Corp. NYSE 2
Minerals Engineering Co. UNL 5
Modern Materials Corp. Unl 3
Modine Mfg. Co. MSE 25
Molybdenum Corp. of America ASE 1
Monroe Auto Equipment Co. Unl 1%, 1, 1,
Monsanto Chemical Co. NYSE 2
Moore (Wm. S.), Inc. Unl 5
Morrell (John) & Co. NYSE 2
Morse Electro Products Corp. ASE 2
Muter Co. ASE 5
Nalley's, Inc. Unl 2
National Can Corp. NYSE 6
National Company, Inc. ASE 2
National Gypsum Co. NYSE 2
National Propane Corp. Unl 5
National Rubber Machinery ASE 2
National Shoes, Inc. Unl 6
National Starch & Chemical Corp. NYSE 2
Nebraska Consolidated Mills Co. Unl 3
Networks Electronic Corp. Unl 5
New Hampshire Ball Bearings, Inc. Unl 3
New York & Honduras Rosario

Mining Co. ASE 4
Northwestern States Portland

Cement Co. Unl 5
Nuclear Chicago Corp. Unl 50
O. K. Rubber Welders, Inc. Unl 2
Oglebay Norton Co. Unl 2
Ohio Oil Co. NYSE 2
Ohmart Corp. Unl 200
One-Hour Valet, Inc. Unl 1
Opelika Mfg. Corp. ASE 4
Oregon Portland Cement Co. Unl 2
Oxford Electric Corp. ASE 5
Pacific Gamble Robinson CO. Unl 2
Pacific Industries, Inc. ASE 4
Package Products Co., Inc. Unl 5
Paddington Corp. ASE 2
Papercraft Corp. Unl 100
Parkersburq-Aetna Corp. ASE 4

180

Name of Company

Peninsular Metal Products Corp.
Penobscot Chemical Fibre
Pepsi-Cola Bottling Co. of
Long Island, Inc.
Pepsi-Cola Bottling Co. of
Washington, D. C.
Pepsi-Cola Gen'l Bottlers,
Perfect-Line Mfg. Corp.
Philadelphia & Reading Corp.
Phillips Screw Co.
Phillips-Van Heusen Corp.

Inc.

Piedmont Label Co., Inc.
Pittston Co.
Planetronics Inc. (N. Y.)

Plume & Atwood Mfg. Co.

Polymer Corp.

POpell (L. F.) Co., Inc.

Port Huron Sulphite & Paper Co.

Portable Electric Tools, Inc.
Potash Co. of America

Preway, Inc.

Prince Gardner Co.

Producers Cotton Oil Co.
Professional Golf Co., Inc.

Progress Mfg. Co., Inc.
Prophet Co.
Publicker Industries, Inc.

Purex Corp. Ltd.

R. C. Can Company

R. T. & E. Corp.

Rabin Winters Corp.
Radiation, Inc.

Radio Corp. of America
Rapid Film Technique
Rayette, Inc.

Raymond Corp.

Rayonier Incorporated (De1.)
Raytheon Co.
Reichhold Chemicals,
Republic Foil, Inc.
Reserve Oil & Gas Co. (Calif.)
Rexall Drug & Chemical Co.
Rieke Metal Products Corp.
Roberts Co.

Robertshaw-Fulton Controls
Robertson (H. H.) Co.

Rockwell Mfg. Co.

Rogers Corp.

Inc.

M

ASE
Unl

ASE

Unl
Unl
Unl
NYSE
ASE
NYSE
Unl
NYSE
Unl
ASE
ASE
Unl
Unl
Unl
Unl
Unl
Unl
Unl
Unl
ASE
ASE
NYSE
Unl

Unl
Unl
Unl
Unl
NYSE
Unl
ASE
Unl
NYSE
NYSE
NYSE
ASE
PCSE
NYSE
Unl
Unl
NYSE
Unl
Unl
ASE

Size of
Dividend (%)

 

3
2

U)

wmhmmmwmmmwwmr—‘wmwmmw WMNNOWubNmOUWmeNLflowF-‘NUTWUW

‘0‘

Q

‘0

V.

‘J

N

N

100

N

N

181

 

Size of
Name of Company Exchange Dividend (%)

Rohm & Haas Co. NYSE 2
Rollins Broadcasting, Inc. ASE 3
Ronson Corp. NYSE 2
Roper Industries, Inc. Unl 200
Rubbermaid, Inc. NYSE 5
Ryan Aeronautical Co. NYSE 5
Ryan Cons. Petroleum Corp. ASE 5
Sabine Royalty Corp. Unl 5
Sabre-Pinon Corp. Unl 5
St. Clair Specialty Mfg. Co., Inc. Unl 5
St. Regis Paper Co. NYSE 2
Salant & Salant, Inc. Unl 3
San Juan Racing Assn.(P. R.) Unl 10
Sanders Associates, Inc. Unl 50
Santa Fe Drilling Co. Unl 105
Savage Industries, Inc. Unl 2%, 2%
Sawhill Tubular Products, Inc. Unl 2
Schlage Lock Co. Unl 5
School Pictures, Inc. Unl 10
Scientific-Atlanta, Inc. Unl 5
Scientific Industries, Inc. Unl 5, 5
Scott Aviation Corp. Unl 5
Seaboard Plywood & Lumber Corp. ASE l
Seagrave Corp. NYSE 2, 2
Sealed Power Corp. Unl 10
Seeman Brothers, Inc. ASE 2, 2, 2
Seismograph Service Corp. Unl 4
Shattuck (Frank G.) Co. NYSE l
Shulton, Inc. Unl 2
Siegler Corp. NYSE 3
Sierracin Corp. Unl 25
Signooe Steel Strapping NYSE 2
Smucker (J. M.) Co. Unl 3
Solon Industries, Inc. Unl 10
Solventol Chemical Products Unl 10
Sorg Paper Co. Unl 3
5055 Mfg. Co. ASE 5
South Shore Oil & Development Co. Unl 5
Southland Royalty Co. ASE 2
Spalding (A. G.) & Bros., Inc. NYSE 3
Spencer Shoe Corp. ASE 25
Sperry Rand Corp. NYSE 2, 2
Spiegel, Inc. NYSE 5
Sprague Electric Co. Unl 2
Staley (A. E.) Mfg. Co. Unl 2
Standard Beryllium Corp. Unl 5
Standard Brass & Mfg. Corp. Unl %
Standard Kollsman Industries, Inc. NYSE 3
Standard Pressed Steel Co. NYSE 2

 

 

182

 

Size of

Neme of Company Exchange Dividend (%)
Star Market Co. Unl 2
State Exploration Co. Unl 5
Stauffer Chemical Co. NYSE 2
Steak 'n Shake, Inc. (Del.) Unl 2
Stecher-Traung Lithograph Corp. Unl 50
Stepan Chemical Co. ‘ ASE 5
Sterling Alum. Prod., Inc. ASE 3
Stokely-Van Camp, Inc. NYSE 10
Stop & Shop, Inc. ASE 3
Stouffer Foods Corp. Unl 4
Struthers-Wells Corp. ASE 5
Sun Drug Co. (Pa.) Unl 5
Sun Oil Co. (N. J.) NYSE 6
Sunbury Milk Products Co. Unl 2
Sunset International Petroleum

Corp. ASE 2%. 2%
Superior Electric Co. Unl 3
Supronics Corp. Unl 5
Susquehanna Corp. Unl 5
Taft Broadcasting Co. Unl 2%
Taylor Publishing Co. Unl 7, 10
Tejon Ranch Co. Unl 2
Tennessee Corp. NYSE 2
Textiles-Incorporated Unl 5
Thiokol Chemical Corp. NYSE 2
Thompson (H. I.) Fibre Glass Co. Unl 2
Thorofare Markets, Inc. ASE 4
Thrift Drug Co. of Pa. Unl 2
Times-Mirror Co. Unl 4
Tobin Packing Co., Inc. Unl 2
Tool Research & Eng. Corp. Unl 5
Torrington Mfg. Co. Unl 5
Towle Mfg. Co. Unl 3
Trade Winds Co. Unl 3
Trane Co. NYSE 25
Trans-Lux Corp. ASE 5
Trav-ler Radio Corp. ASE 5
Triangle Conduit & Cable Co., Inc. ASE 5
Triangle Lumber Corp. Unl 2, 2
Twentieth Century-Fox Corp. NYSE 2
Union Oil Co. of California NYSE 2
Union Texas Natural Gas Corp. Unl 3
United Automotive Industries,

Inc. (Calif.) Unl 2, 3
United Carbon NYSE 3
United States Mineral Wool Co. Unl 5
Universal Cyclops Steel NYSE 3
Universal Match Corp. NYSE 2
Utah Construction & Mining Co. Unl 2

 

 

183

Name of Company

Van Camp Sea Food Co., Inc.
Van Waters & Rogers, Inc.
Vanderbilt Tire & Rubber
Vernitron Corp.

Victoreen Instrument Co.
Virginia Iron, Coal & Coke Co.
Voi-Shan Industries, Inc.
Von Hamm-Young Co., Ltd.

Walgreen Co.

Walker (B. B.) Shoe Co.
Wallace (William) CO.
Wallace Press, Inc.
Warner Co.

Wayne Manufacturing Co.
Weatherford (R. V.) Co.
Webcor, Inc.

Webster Electric Co.
Weiman Co., Inc.
Weingarten Markets Realty Co.
Wells Industries Corp.
Welsbach Corp.

Western Publishing Co., Inc.

Western Tablet & Stationery Corp.

Weyenberg Shoe Mfg. Co.
Whitehall Cement Mfg. Co.
Whitin Machine Works
Wilcox Oil Co.

Williams Bros. Co.

Williams-McWilliams Industries,

Inc.
Wolverine Shoe & Tanning Corp.
World Color Press, Inc.
World Publishing Co.

Yonkers Raceway, Inc.

Zenith Radio Corp.

(Hawaii)

Exchange

Unl
Unl
ASE
Unl
ASE
ASE
Unl
HON

NYSE
Unl
Unl
Unl
NYSE
Unl
Unl
MSE
Unl
ASE
Unl
Unl
Unl
Unl
ASE
ASE
Unl
Unl
NYSE
ASE

ASE
Unl
Unl
MSE
ASE

NYSE

Size of
Dividend (%)

100
3

2
50
4

H
O
NOU"

N

H

H

H

00
O
WNHNOUTUWOLfiUlUlLOUlUJUTONONUJ

 

184

 

 

 

 

Financial
Size of
Name of Company Exchange Dividend (%)

Aetna Finance Co. Unl 2%
Airport Parking Co. of America Unl 25
All American Life & Casualty Co. Unl 6
All State Credit Corp. Unl 2
Allied Small Business Investment

Corp. Unl 3
American Bank & Tr. Co., Lansing Unl 10
American Bank & Trust Co.

(New Haven) Unl 20
American Bankers Life Assurance

(Fla.) Unl 5
American Independent Reinsurance Unl 5
American Land Co. Unl 6
American Motorists Ins. Co. Unl 5, 5
American Nat. Bank (Austin, Tex.) Unl 33%
American Nat. Bank & Trust

(Chattanooga) Unl 16-2/3
American Nat. Bank & Tr. (Cgo.) Unl 33%
American Re-Insurance Co. Unl 10
American Universal Ins. Unl 4.17
Amicable Life Ins. Co. Unl 5
Arizona Bancorporation Unl 3
Atlas Credit Corp. Unl 2, 2
B. M. C. Durfee Trust Co. Unl 25
Baldwin Securities Corp. ASE 4
Banco de Ponce (Ponce, P. R.) Unl 4
BancOhio Corp. Unl 5
Bank of America N. T. & S. A. Unl 5
Bank of Babylon Unl 10
Bank of the Commonwealth (Detroit) Unl 12%
Bank of Dade County Unl 5
Bank of Dearborn Unl 4
Bank of Delaware Unl 60
Bank of Hawaii (Honolulu) HON 8
Bank of Huntington (N. Y.) Unl 5
Bank of Southwest N. A. (Houston) Unl 15
Bank of Texas (Houston) Unl 10
Bankers Nat. Life Insurance Unl 7%
Barnett Nat. Bank (Jacksonville) Unl 25
Beneficial Finance Co. NYSE 10
Beneficial Standard Life Ins. Unl 4
Bensonhurst National Bank Unl 25
Berman Leasing Co. Unl 3
Beverly (Mass.) Nat. Bank Unl 33%
Birmingham Trust Nat. Bank Unl 25
Bishop Trust Co. Ltd. (Honolulu) HON 2, 2
Boardwalk National Bank (N. J.) Unl 25

185

Name of Company

Broad Street Trust Co.

Buck's County Bank & Trust

Budget Finance Plan

Bush Terminal

Business Men's Assur. Co. of Amer.

C. F. C.

Funding,

Inc.

Calif. Financial Corp.

Calif. West.
Camden (N.

Canal Nat. Bank (Portland, Me.)

States Life Ins.
J.) Trust Co.

Carolina Casualty Insur.

Central Bank & Tr.

Co.

Central Charge Service
Central Home Tr.
New Jersey)

Cent. Nat.

(Elizabeth,

Bank (Richmond)
Central Standard Life Insur.

Century Acceptance Corp.

Century Properties

Certified Credit Corp.

Chase Capital Corp.

Chase Manhattan Bank (N. Y.)

Cheltenham Nat.

Bk.

(Pa.)

Chittenden Trust Co. (Vermont)
Bank of Maryland

Citizens
Citizens
Citizens
Citizens
Citizens
S. C.
Citizens

Coml. & Sav.
Nat. Bank (Evansville)
Nat. Bank (Laurel, Md.)
Nat. Bank of

& South.

Tr. Co.

Michigan)

City Investing Co.
City National Bank
City National Bank
City National Bank
City Trust Company
Civil Service Employees Ins. Co.
Cleveland Trust Co.

College Life Ins. Co. of America

(Schenectady)
City Bank & Tr. Co.

(Jackson,

(Baton Rouge)
(Beverly Hills)
(Clearwater)
(Bridgeport)

Colorado Insurance Service
Combined Ins. Co.

Commercial Bank of No.
Commercial Nat.

of America
America
Bank (Little Rock)

(Phila.)

(Denver)

Co.

Bank (Flint)

Exchange

Unl
Unl
ASE
NYSE

Unl

Unl
Unl
Unl
Unl

Unl
Unl
Unl
Unl

Unl
RSE
Unl
Unl
Unl
Unl

Unl
Unl
Unl
Unl
Unl
Unl
Unl
Unl

Unl
Unl

Unl
NYSE
Unl
Unl
Unl
Unl
Unl
Unl
Unl
Unl
Unl
Unl
Unl

Size of
Dividend (%)

10

1.0459,
1.4925
4.76, 2.73
17.04

5

5

4
14-2/7
10

2

5

1%, 1%.
1%, 1%

 

186

Name of Company

Connecticut Gen. Life Ins. Co.
Consol-Development Corp.
Consumers Invest. Fund, Inc.
Continental Amer. Life Ins. Co.
Continental Assurance Co.
Continental Casualty Co.

County Trust Co. (White Plains)
Crocker-Anglo Nat. Bank

Delaware Valley Financial Corp.
Denver U. S. National Bank
Deposit th. Bank & Tr. (Jackson)
Diner's Club, Inc.
Disc, Inc.
Donbar Development Corp.
Drovers & Mech. Nat. Bank

(York, Pa.)
Drovers Nat. Bank (Chicago)
Drovers Tr. & Sav. Bank (Cgo.)

Eastern Life Ins. Co. of New York
Eastern Nat. Bank of L. I.
Eichler Homes, Inc.

El Paso (Tex.) National Bank
Empire Financial Corp.

Empire Trust Co. (N. Y.)
Equitable Trust Co. (Baltimore)
Equity Corp.

Exchange Nat. Bank (Chicago)

F. & F. Finance

Family Fund Life Ins. Co.

Far West Financial Corp.

Farmers & Merchants Trust Co.
(Chambersburg, Pa.)

Farmers New World Life Ins. Co.

Farmers Sav. & Trust Co.

Fayette Nat. Bank & Tr. Co. (Pa.)

Federation Bank & Tr. Co. (N. Y.)

Fidelity Deposit Co. of Md.

Fidelity Union Tr. Co. (Newark)

Fifth Third Union Trust (Cinn.)

Financial Federation, Inc.

Financial General Corp.

First Amer. Nat. Bank (Nashville)

First Camden Nat. Bank & Tr. Co.

First Charter Financial Corp.

First & Citizens Nat. Bank
(Alex., Va.)

Exchange

Unl
Unl
Unl
Unl
Unl
Unl
Unl
PCSE

Unl
Unl
Unl
NYSE
Unl
Unl

Unl
Unl
Unl

Unl
Unl
Unl
Unl
Unl
Unl
Unl
ASE
Unl

Unl
Unl
Unl

Unl
Unl
Unl
Unl
Unl
Unl
Unl
Unl
NYSE
ASE
Unl
Unl
NYSE

Unl

Size of
Dividend (%)

100

5
50
50
50
25
5
16-2/3

l 8

NUlUlU'INN

187

Name of Company

 

First Continental Nat. Bank

& Tr

ust

First Financial Corp. of the

West

First Ins. Co. of Hawaii, Ltd.
(Honolulu)
National
National
National
National

(Ala.)

First
First
First
First
ham
First
First
First
First
(Tex
First
First
New
First
First
First
First
First
First
First

Nat.
Nat.

Bank
Bank

Bank of Akron
Bank Amarillo
Bank Baltimore
Bank of Birming-

of Boston (Mass.)
of Chicago

National Bank (Cinn., 0.)

Nat.
as)

Nat.
Nat.
York
Nat.
Nat.
Nat.
Nat.
Nat.
Nat.
Nat.

land)
First Nat.
First Nat.

(Florida)

First Nat.

Illinois)

First Nat.

Bank

Bank
Bank

Bank
Bank
Bank
Bank
Bank
Bank
Bank

Bank
Bank

Bank

Bank

(New Jersey)

First Nat.
First Nat.
First Nat.
First Nat.
First Nat.

Bank
Bank
Bank
Bank
Bank

(Evanston)

First Nat.

Bank

field, Mass.)

First Nat.
First Nat.

Bank
Bank

Tulsa (Okla.)

First Nat.

City

of Forth Worth

(Glen Head, N. Y.)

of Glens Falls,

(Jackson, Miss.)
(Leesburg, Fla.)
(Lubbock, Tex.)

(Marshall, Tex.)
(Neenah, Wisc.)

of Nevada (Reno)
of Oregon (Port-

of Passaic County
in St. Petersburg

(Springfield,

of Toms River
(Waukesha, Wisc.)
(Wilkes Barre)

in Yonkers, N. Y.
(York, Pa.)

& Tr. Co.
& Tr. Co.

(Green—

& Tr. (Racine)
& Tr. Co. of

Bank (N. Y.)

First Nat. Exchange Bank

(Roanoke, Va.)

Exchange

Unl

Unl

HON
Unl
Unl
Unl

Unl
Unl
Unl
Unl

Unl
Unl

Unl
Unl
Unl
Unl
Unl
Unl
Unl

Unl
Unl

Unl
Unl
Unl
Unl
Unl
Unl
Unl
Unl

Unl
Unl

Unl
Unl

Unl

Size of
Dividend (%)

6-2/3
7

20

4
25
50

18.18
14—2/7

12%
10

33s
20
2.56

66-2/3
7.14

 

 

 

188
Size of
Name of Company Exchange Dividend (%)
First Nat. Realty & Construc-

tion Corp. ASE 5
First Security Corp. Unl 2
First Tr. & Deposit Co. (Syra-

cuse) Unl 2
First Westchester Nat. Bank,

New Rochelle, N. Y. Unl 2
Frankford Trust Co. (Phila.) Unl 100
Franklin County Tr. Co. (Green-

field, Mass.) Unl 5
Franklin Life Ins. Co. Unl 25
Franklin Nat. Bank of L. I.

(Mineola, N. Y.) Unl 3.578
Fund of America, Inc. Unl 104.239
Gallatin National Bank Unl 5
General Acceptance Corp. NYSE 2
General Contract Finance Corp. NYSE l
Genessee Merchants Bank & Tr. Co.

(Flint) Unl 10
Gibraltar Fin. Corp. of Calif. Unl 5
Government Employees Corp. Unl 4
Government Employees Ins. Co. Unl 2%
Government Employees Life Ins. Co.

(Washington, D. C.) Unl 50
Grace National Bank of New York Unl 50
Great Western Financial Corp. NYSE 5
Guarantee Bank & Tr. Co.

(Atlantic City, N. J.) Unl lO
Guaranty Nat. Ins. (Colo.) Unl 6
Gulf Insurance Co. Unl 6-2/3
Hamilton Nat. Bank (Chattanooga) Unl 14.28
Hamilton Nat. Bank (Knoxville) Unl 2O
Hanover Bank (New York) Unl 11-1/9
Harter Bank & Tr. Co. (Canton, 0.) Unl 50
Hawaiian Pacific Industries, Inc.

(Hawaii) Unl 5
Hawthorne Financial Corp. Unl 5
Hempstead Bank (L. I.) Hempstead,

New York Unl 20
Home Insurance Co. of New York Unl 10
Home Nat. Bank & Tr. Co. (Meriden,

Conn.) Unl 2.94
Horizon Land Co. Unl S, 5
Hot Shoppes, Inc. Unl 4
Houston Nat. Bank (Texas) Unl 2, 1.96

Hudson Trust Co. (Union City,
N. J.) Unl lO

189

Name of Company

Hunterdon County Nat. Bank
Huntington Nat. Bank of Colum-
bus, Ohio

Ill. Nat. Bank of Springfield
Indiana Bank & Tr. Co.

(Fort Wayne, Indiana)
Industrial Trust Co. (Phila.)
Industrial Valley Bank & Tr. Co.
Inland Credit Corp.

Inland Homes Corp.
Insurance Corp. of America

Inter-County Title Guaranty &
Mortgage Co. (N. Y.)
Interstate Fire & Casualty Co.
Interstate Life & Accident
Insurance Co.
Irving Trust Co. (N. Y.)
Knott Hotels Corp.
LaSalle Nat. Bank (Chicago)
Lake Cty. Nat. Bank (Painesville,
Ohio)
Liberty Life Ins. Co.
ville, S. C.)
Liberty Nat. Life Ins. Co.
Life Ins. Co. of Richmond Va.
Lincoln Income Life Ins. Co.
Lincoln Nat. Bank & Tr. Co.
Central New York
Lincoln Nat. Bank & Tr.
Fort Wayne (1nd.)
Lincoln Rochester Tr. Co.
Linden (N. J.) Trust Co.
Lockhart Corp.
Long Is. Nat. Bank (Hicksville)
Lynchburg (Va.) Nat. Bank & Tr.
Lytton Financial Corp.

(Green-

of

Co. of

Manhattan Life Insurance Co.
Manufacturers Nat. Bank (Detroit)
Manufacturers and Traders Tr. Co.
(Buffalo)
Marine Bank & Tr. Co.
Marine Midland Corp.
Maryland Life Insurance
Maryland Nat. Ins. Co.
Meadow Brook Nat. Bank
Mellon Nat. Bank & Tr.
(Pitts.)

(Tampa)

Co.

Exchange
Unl
Unl
Unl

Unl
Unl
Unl
ASE
ASE
Unl

Unl
Unl

Unl
Unl

ASE
Unl

Unl

Unl
Unl
RSE
Unl

Unl

Unl
Unl
Unl
Unl
Unl
Unl
Unl

Unl
Unl

Unl
Unl
NYSE
Unl
Unl
Unl

Unl

Size of
Dividend (%)

3.23
11-1/9
10

25
1.20

132, 1‘1

2

33%
2

3
11-1/9

10.7692

20
33%

 

190

 

 

 

Size of
Name of Company Exchange Dividend (%)
Merchandise Nat. Bank, Chicago Unl 11-1/9
Merchants Bank of New York Unl 2
Merchants Nat. Bank & Tr. Co.

(Indianapolis) Unl 10
Metropolitan Bank (Miami) Unl 5
Mid-City Nat. Bank of Chicago Unl 33%
Midwest Life Ins. Co. Unl 100
Midwestern Fin. Corp. (Colo.) Unl 3, 3
Midwestern United Life Ins. Co. Unl 20
Mission Equities Corp. of Calif. Unl 5
Monmouth Cty. Nat. Bank (Red Bank) Unl 2.5237, 2
Montclair Nat. Bank & Tr. Co. Unl 12
Monumental Life Ins. Co. Unl 25
Mountain Trust Bank (Roanoke) Unl 20
Municipal Ins. of America Unl 5
Nat. Bank of Commerce (Dallas) Unl 33%
Nat. Bank of Commerce (Houston) Unl 4
Nat. Bank of Detroit Unl 12%
Nat. Bank of Jackson (Mich.) Unl 10
Nat. Bank of New Jersey Unl 10
Nat. Bank of Tulsa (Okla.) Unl 4.35
Nat. Bank of Westchester Unl 4
Nat. Bank of York County Unl 2
Nat. Bank & Tr. of Fairfield Cty. Unl 1.92, 1.89
Nat. Blvd. Bank of Chicago Unl 16-2/3
National Homes Corp. Unl 2
National Security Ins. (Ala.) Unl 10
Nat. State Bank (Newark, N. J.) Unl 7-1/7
Nationwide Corp. Unl 2%, 2%
Naumkeag Trust Co. Unl 20
New Britain Trust Co. (New Brit-

ain, Conn.) Unl 10
New Hampshire Ins. Co. Unl 5
Newton-Waltham Bank & Tr. Co. Unl 51%
Norfolk County Tr. (Brookline) Unl 13.64
North Amer. Life Ins. Co. (Cgo.) Unl 10
North Shore Nat. Bank (Cgo.) Unl 10
Northern Nat. Bank of Presque

Isle (Me.) Unl 11-1/9
Northwest Nat. Bank (Cgo.) Unl 100
Oak Park (111.) Tr. & Sav. Bank Unl 20
Ohio Citizens Tr. Co. (Toledo) Unl 6
Old Kent Bank & Tr. Co. Unl 5
Old Nat. Bank of Spokane Unl 10
Omaha Nat. Bank (Omaha, Neb.) Unl 14-2/7
Pacific Nat. Bank of Seattle Unl 9.09

Pacific State Bank (Hawthorne,
Calif.) Unl 5

191

Name of Company

Palisades Tr. Co. (Englewood,
New Jersey)

Palomar Mortgage Co.

Peoples Life Ins. (Washington,
D. C.)

Peoples Nat. Bank & Tr. Co.
(Bay City, Mich.)

Peoples Nat. Bank & Tr. Co.
(Norristown, Pa.)

Peoples Nat. Bank of Wash.
(Seattle)

Peoples Nat. Bank & Trust Co.
(Lynchburg)

Peoples State Bank (St. Joseph,
Mich.)

Philadelphia Life Ins. Co.

Phoenix Sav. & Loan Assn. (Md.)

Plainfield (N. J.) Trust State
Nat. Bank

Preferred Ins. Co. (Grand Rapids)

Protective Life Ins. Co. (Bir-
mingham)

Provident Life Ins. Co. (N. D.)

Puget Sound Nat. Bank of Tacoma

Pullman Tr. & Sav. Bank (Cgo.)

Putnam Growth Fund

Putnam Tr. Co. (Greenwich, Conn.)

Pyramid Life Ins. Co. (N. C.)

Quaker City Life Insurance Co.

Realty Equities Corp. of N. Y.
Reliance Ins. Co.

Republic Ins. Co. (Dallas)
Republic Nat. Bank of Dallas
Revere Fund, Inc.

Exchange

Unl
Unl

Unl
Unl
Unl
Unl
Unl

Unl
Unl
Unl

Unl
Unl

Unl
Unl
Unl
Unl
Unl
Unl
Unl

Unl

ASE
ASE
Unl
Unl
Unl

Rockland Nat. Bank (Suffern, N. Y.)Un1

Royal Bank & Tr. Co. (Louisville)
Royal State Bank (N. Y.)

Salisbury Nat. Bank (Maryland)
San Diego Imperial Corp.
Schuylkill Haven Tr. Co. (Pa.)
Seaboard Finance (Del.)

Seaboard Land Co.

Seattle Tr. & Sav. Bank

Second Nat. Bank of Saginaw
Second Nat. Bank of Warren (Ohio)
Securities Acceptance Corp.
Security Bank (Lincoln Pk., Mich.

Unl
Unl

Unl
NYSE
Unl
NYSE
Unl
Unl
Unl
Unl
Unl
) Unl

Size of
Dividend (%)

14-2/7

100
42-6/7
10

U1
U"

.66-2/3

N U1
UTNWU'IO OWUIWONO‘U'IU'I

OJ
x

NrJH
mwwmo
J‘

 

 

 

 

 

192
Size of
Name of Company Exchange Dividend (%)
Security Bank (Washington, D. C.) Unl 10
Security First Nat. Bank (L. A.) Unl 10
Security Ins. Co. (Conn.) Unl 3, 3
Security Life & Accident Co.

(Colo.) Unl 25
Security Life & Tr. Co. (N. C.) Unl 25
Security Nat. Bank of L. I. Unl 2
Security Tr. Co. of Lynn, Mass. Unl 10
Security Tr. Co. of Rochester Unl 10
Shapiro (M.) & Sons Unl 2
Sheraton Corp. of America NYSE 2
South East Nat. Bank (Chicago) Unl 40
Southern Bank & Tr. Co. (Rich-

mond, Va.) Unl 3
Southwest Bank (St. Louis, Mo.) Unl 5
Sovereign-Western Corp. of Nevada Unl 5
Springfield Ins. Co. (Mass.) Unl 5
Springfield (Mass.) Safe Deposit

& Trust Unl 25
State Bank & Tr. Co. (Ann Arbor) Unl 20
State Bank & Tr. Co. (Evanston) Unl 10
State Bank of Albany, N. Y. Unl 5
State Capital Life Ins. Co.

(N. C.) Unl 4
State Nat. Bank of Decatur (Ala.) Unl 10
Stephenson Fin. Co., Inc. (S. C.) Unl 7
Sterling Nat. Bank & Tr. Co. of

New York Unl 2
Stone (E. B.) Finance Co., Inc. Unl 10
Studio Apartment Co., Inc. Unl 3
Suburban Trust (Hyattsville) PSE 5
Summit (N. J.) Trust Co. Unl 3
Texas Bank & Tr. Co. (Dallas) Unl 5
Third Nat. Bank & Tr. Co. (Dayton) Unl 10
Thorp Finance Corp. Unl l, 1, 1
Time Finance Co. (Baltimore) Unl 5
Tishman Realty & Construction NYSE 5
Title Guarantee Co. (N. Y.) Unl 4
Title Ins. & Trust Co. (L. A.) Unl 10
Trade Bank & Tr. Co. (N. Y.) Unl 8
Tradesmen's Nat. Bank of New Haven,

Conn. Unl 10
Trans-Coast Investment Co. Unl 5
Transnation Realty Corp. Unl S, 5
Trans-World Financial Co. Unl 5
Trust Co. of Georgia (Atlanta) Un1 22.2
Trust Co. of New Jersey Unl 2.0354

193

Name of Company

Union & New Haven Tr. Co.

(New Haven,

Conn.)

Union Bank (Los Angeles)
Union Center Nat. Bank (N. J.)
Union Financial Corp.

Union Investment Co.

(Mich.)

Union Nat. Bank (Clarksburg,

W. Va.)

Union Nat. Bank (Kans. City)

Union Planters Nat. Bank (Memphis)
Union Sav. & Tr. Co.

Union Tr. Co. of Maryland
United Amer. Life Ins. Co

(Denver)

United Financial Corp. of Calif.

United Funds,
ence Fund

Inc.--United Sci—

United Service Life Insurance
United States Life Ins. Co.

(New York)

United States Nat. Bank of San

Diego

United States Tr. Co. of New York
Upper Avenue Nat. Bank of Chicago

Uris Building Corp.

Valley Nat. Bank of L. I.
Valley Nat. Bank (Phoenix)

Venture Securities Fund,

Del.

Inc.,

Volunteer State Life Ins. Co.
(Chattanooga)

Washington Nat.

Ins. Co.

Wells Fargo Bank, Amer. Tr. Co.
Wesco Financial Corp.

Western Penna.
(McKeesport)

Nat. Bank

Western States Life Ins. Co.

Winfield Growth Indus. Fund,
Inc. (N. C.)

Wise Homes,

Yosemite Park & Curry Co.

(Warren, 0.)

Inc.

Exchange

Unl
Unl
Unl
Unl
ASE

Unl
Unl
Unl
Unl
Unl

Unl
Unl

Unl
Unl

Unl

Unl
Unl
Unl
Unl

Unl
Unl

Unl
Unl
Unl
PCSE
Unl
Unl
Unl
Unl
Unl

Unl

Size of

 

Dividend (%)

100

mm

200
20

25
10

33%
100

10

194

Transportation

 

Name of Compagy

 

Alaska Airlines Inc.
American Export Lines, Inc.

Kaneb Pipe Line Co.

Niagara Frontier Transit Sys-
tem, Inc.

Peterson, Howell & Heather, Inc.
Piedmont Aviation, Inc.

Roadway Express, Inc.

United Air Lines, Inc.
United States Lines Co. (N. J.)

 

 

Size of
Exchange Dividend (%)
ASE 5
NYSE 2%
Unl 3
Unl 2
Unl 3
Unl 10
Unl 4
NYSE 6
NYSE 3

195

 

 

 

 

Utilities
Size of
Name of Company Exchange Dividend (%)

American Elec. Power Co., Inc. NYSE 2k
Arkansas-Missouri Power Co. Unl 3
Arkansas Western Gas Co. Unl 2

The Brooklyn Union Gas Co. NYSE 10
California Western Gas Co.

(Del.) Unl 5
Central Telephone Co. (Del.) Unl 1
Citizens Utilities Co. Unl 1.4, 1
City Gas Co. of Florida Unl 4
Commonwealth Edison Co. NYSE 2
Commonwealth Natural Gas Corp.

(Va.) Unl 10
Consumers Water Co. Unl 5
Florida Public Utilities, Inc Unl 2
General Waterworks Corp. Unl 3, 3
Greeley Gas Company (Colo.) Unl 6
Indiana Gas & Water Co., Inc. Unl 2
Inter-County Tel. & Tel. Co.

(Fla.) Unl 1
Kansas-Nebraska Natural Gas Co.,

Inc. (Kansas) Unl 10
LaCrosse Tel. Corp. (Wisc.) Unl 1
Michigan Gas & Elec. Co. Unl 3
Middle States Tel. Co. of Ill. Unl 1
Missouri Natural Gas Co. Unl 2
Missouri Public Service Co. NYSE 8, k, k, 8
New Jersey Natural Gas Co. Unl 2
Northern Ohio Tele. Co. Unl 25
Ohio Water Service Co. Unl 2
Peoples Gas System, Inc. (Fla.) Unl 5
Petersburg & Hopewell Gas Co. Unl 2%
Philadelphia Suburbar Water Co. Unl 3
Portland (Me.) Gas Light Co. Unl 3
Public Service Co. of Colo. NYSE 5
Rochester Gas & Electric Corp. NYSE 3

196

 

 

 

Size of
Name of Compeny Exchange Dividend (%)
Southeastern Tel. Co. (Fla.) Unl 1
Southern Calif. Edison Co. NYSE 4
Southern Gas & Water Co. (W. Va.) Unl 2
Utilities & Industries Corp.
(No Yo) UH]. 2
Volunteer Natural Gas Co. Unl 5
West Ohio Gas Co. Unl 2, 50
Wisconsin Southern Gas Co., Inc. Unl 1

York Water Co. Unl 2

197

 

 

 

 

Unclassifiedl
Size of
Name of Company Exchange Dividend (%)
Casa International Corp. Unl 5
Cisco Group Unl 5
Professional Men's Assn.
(Colo.) Unl 3, 3
Renewal Guaranty Corp. Unl 5
Wilson (H. H.) Inc. Unl 5

1Industry classification was not available because
companies are small and obscure.

   

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