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Payout policies

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  • 1. Daniel Adam Blanco PAYOUT POLICIES
  • 2. How to pay out cash to shareholders? Dividends Buy back shares
  • 3. How to pay dividends and repurchase stocks? Set by? Board of Directors To whom? Depends on Record Date Stocks sold w/ dividends? Until 2 business day Before Record Date
  • 4. How to pay dividends and repurchase stocks? Cash No Cash Regular Special DRIPs Stock Dividends
  • 5. How to pay dividends and repurchase stocks? How do firms repurchase stock? Open market Tender plans Dutch auction Direct negotiation
  • 6. How do companies decide on the payout? Firm´s dividend policies
  • 7. How do companies decide on the payout? Then, why? Acc. Unwanted Cash Change Capital Structure ▲ debt ▼ equity
  • 8. How do companies decide on the payout? Use of Dividends = Use of Repurchases? Dividends are not an appropiate way to pay out transitory earnings
  • 9. The information in dividends and stock purchases Is information reliable? Assets and earnings Dividends Meaningless Reliable in the l/r
  • 10. The information in dividends and stock purchases Dividend changes predict future? No increase without enough cash Investors like increase in dividends Unexpected change can cause stock prices to bounce
  • 11. The information in dividends and stock purchases What information do repurchases give? Signal of a manager´s confidence in the future
  • 12. The payout controversy
  • 13. The payout controversy Miller and Modigliani Rightists Radical Left
  • 14. The payout controversy Rightists Favor large payouts Financial institutions Clientele of investors
  • 15. The payout controversy Rightists Regular dividends Relieve transaction costs Behavioral psychology Lack of profitable investment
  • 16. The payout controversy Surplus of money = dividends Situation Fixed investment. No borrowing Transfer Value
  • 17. The payout controversy Transfer of Value
  • 18. The payout controversy Transfer of Value
  • 19. The payout controversy Therefore Value = assets and CF ▲ payout = ▲ cash must be recovered by ▲ stocks Payout constant ▲ dividend= ▼ cash shareholders receive for repurchase
  • 20. The payout controversy Taxes and Radical Left High taxes on dividends Available cash= retained or used for repurchasing
  • 21. The payout controversy Any evidence?
  • 22. The payout controversy Any evidence? Taxes are important But its difficult to measure
  • 23. The payout controversy Middle-of-the-roaders Company´s value is not affected by dividend policy
  • 24. The payout controversy Middle-of-the-roaders Company´s value is not affected by dividend policy Supply of dividends is free to adjust to demand
  • 25. Thanks!

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