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How will a GameStop Dividend work?
GameStop plans to increase the number of authorized shares of Class A common stock from 300,000,000 to 1,000,000,000 in order to implement a stock split of the Company’s Class A common stock in the form of a stock dividend.
The stock soared more than 14% after hours moments after the announcement.
Several call options within $170-$190 are in the pocket to fuel massive gamma squeeze for Friday’s rally.
To say GME shareholders are excited is an understatement.
But GameStop shareholders aren’t the only ones who are excited.
The entire ‘meme stock’ crowd is happy to hear the news as most upswings have been in synchronicity with both GameStop and AMC.
GME stock is up more than 16% after hours while AMC which also closed red today is up more than 5%.
What type of dividend GameStop unveils is yet unknown, but a dividend usually comes in the form of monthly, quarterly, or annual compensation.
Investors are even speculating an NFT dividend could be underway.
However, this is a developing story so be sure to join the newsletter for immediate updates.
How does a stock dividend work?
Stock dividends pay shareholders a percentage from a company’s profits every month, every quarter, or annually, depending on the terms.
Shareholder will have two options when receiving stock dividends.
Cash out the dividend during every payment cycle
Reinvest the dividend back into the stock to accumulate more shares over time
If GameStop offers shareholders a traditional dividend (non-NFT), then shareholders will be able to use one of these two options.
How much investors earn every month, or every quarter will depend on how many shares an investor holds and on GameStop’s dividend yield.
The more shares of a company an investor holds means the more dividend yield is accumulated over a period of time.
A GameStop dividend could provide shareholders with a stream of passive income like most dividend stocks do.
Long terms stockholders tend to reinvest that dividend so that the number of shares they own compound over time, creating a snowball effect of increased value assets.
This is what Warren Buffett refers to as value investing.
So, how does a stock split work?
A stock split takes a share and splits it into two or more shares, dividing the share price by the number of splits.
This means for every share you own of AMZN stock you will receive 20 more shares when the stock splits.
AMZN stock is worth roughly $3,200 today.
If the stock split today and you only owned 1 share of stock, you will now have 20 shares each worth $160.
Owning 2 shares of AMZN stock would give you 40 shares valued at $160.
Tesla and Apple had stock splits earlier last year too.
GameStop’s stock split ratio is still unknown, but I will cover it as more information from the company is released.
What is the purpose of a stock split?
A stock split allows investors to purchase a company’s stock at much more affordable price.
Especially after a stock’s share price has surged to relatively high numbers.
Going back to Amazon as an example, while $3,200 per share is not feasible for most small investors, $160 per share incentivizes retail investors to buy the stock at a much lower entry point.
A GameStop stock split too could allow retail investors to buy the stock at a much lower price.
GameStop stock split explained
The company wants to increase the number of common stocks in the market from 300,000,000 to 1,000,000,000 to provide that capital to its shareholders in the form of a dividend.
So, it’s possible we don’t even see a traditional stock split (unless announced by GameStop).
The information we have available at the moment points towards this ‘dilution’ so-to-speak as a form of payment to GameStop’s shareholders in the form of a GameStop dividend.
GameStop’s board of directors has approved both stockholder proposals, but the stock dividend will be contingent (subject to change) on the final Board approval.
What does a GME stock dividend mean for short sellers?
The news of a GME stock dividend means retail investors will flood the market to buy GameStop, causing short sellers not only lose a lot of money, but to close their positions.
What happens to a short seller when a company announces a stock dividend?
If the stock is short on the record date, they will owe the dividend to their broker.
At this point a GameStop short squeeze is inevitable.
Shorts will be forced to buy back their shares to pay their brokers the dividend they’re entitled to once this proposal is executed, or they have the chance to close their short positions now before accumulating greater losses in the future.
Either way this plays out, short sellers are not in a good position right now.
Is GameStop a buy right now?
GameStop might be a little pricey at the moment, but investors buying in for a short squeeze have a chance at making a lot of money in the near-term future.
Are you a GME shareholder?
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