Why DILUTION is bad for investors... Dilution of a companys' stock is REDUCED OWNERSHIP for the share owners... plain and simple.
If a stock has 40 million shares outstanding, and dilutes to 400 million shares outstanding... an owner of 1 million shares would have been a 2.5% owner, now he is only a .25% owner...
Why is this bad? Because earnings per share are now much lower, and if the company declares a dividend, the dividend now has to be split 400 million ways, instead of 40 million ways..
Example... Say Medient has 3 blockbuster movies next year and makes 100 million dollars in profits on 300 million dollars in revenues... Now, the CEO and Board of directors decides to reward early investors with a cash dividend of 40 million dollars of the 100 million dollars in profits. Such a payout would increase the value of the stock, as investors would want to own the stock in the future for such dividends... But how much would everyone get? With 40 million shares and 40 million dollars, the 1 million share investor would get 1 million dollars as a dividend.
With 400 million shares outstanding, the investor would only get 100,000 dollars as a dividend.
Now, of course, I'm not predicting a 40 million dollar dividend, just showing how dilution reduces ownership of the company for investors. Now, if dilution raises a bunch of cash, that is used to fund new ventures, plants, equipment, etc. that INCREASES profits, then the dilution could be good. However, the amount of cash to be raised at .017 per share is minimal, compared to the damage the dilution would be doing, so I hope the company would resort to waiting for the stock to significantly rise, before allowing any more dilution, after this round is finished. A private placement would be much better, and, I believe with the interest this company has, should be easy to accomplish.
Good luck to all.
AI
