Does the SEVN stock dividend increase its marketcap?

Short answer: No.

But what’s the fun in that? First, let's get some of the facts down. Philippine Seven [SEVN 120.90 ?5.1%; 79% avgVol] declared a 100% stock dividend, which means that on August 15, each person who owns a share of SEVN will receive another share of SEVN as a dividend. They don’t have to pay to receive this share, it just gets airdropped into their brokerage account. Before the stock dividend, SEVN will have 756,418,283 outstanding shares.

The stock dividend will double its outstanding shares count to 1,512,836,566. Market capitalization (“marketcap”) is calculated by multiplying the number of outstanding shares by the current market value of one share.

Ok, now that we got all that out of the way, let’s take a closer look. Using Friday’s closing price of P120.9/share, SEVN’s marketcap before the dividend will be somewhere in the neighborhood of P91.4 billion (120.9 * 756,418,283).

After the stock dividend, SEVN’s outstanding shares will double, but what those shares represent won’t have changed at all. The SEVN “pizza” that was once split into 756,418,283 slices is now split into 1,512,836,566 slices; there’s still the same total amount of “pizza”, but what was once represented by one share is now represented by two shares. This means that the price of SEVN’s stock on the day the dividend is paid out will be halved as compared to its previous closing price.

If this adjustment didn’t occur, a stock dividend would be a game-breaking free money glitch! So while I don’t know what SEVN’s market price will be the day before the dividend is paid on August 15, let’s just use the same Friday closing price of P120.9/share to calculate.

Take the previous close, divide it by two to get the new per-share price of the post-dividend stock (P60.45), then multiply that by the new number of outstanding shares (1,512,836,566) and you still get P91.4 billion. The stock dividend doesn’t increase the marketcap because it doesn’t increase the size of SEVN’s pizza, it just splits what is already there into a higher number of slices.

MB BOTTOM-LINE: A stock dividend operates like a stock split. Here, SEVN is basically doing a classic “two for one” stock split where one