This document discusses dividend policy and various types of dividends. It defines dividends as distributions to shareholders proportionate to share ownership. There are various types of dividends including cash, stock, and property dividends. The document outlines relevant dates for dividends including declaration, record, and payment dates. It also discusses the accounting entries related to dividends. Additionally, it covers dividend reinvestment plans, factors in determining dividend policy, and different approaches to dividend policy including constant payout ratio and regular dividend policies.
What is Dividends
Types of cash dividends
Procedure for Dividend Payment
Ex-Dividend Date Is Important
Do Dividends Matter ?
DIVIDEND THEORIES
DIVIDENDS AND THE REAL WORLD
Dividends And Signaling
CLIENTELE EFFECT HYPOTHESIS
DIVIDEND POLICY PRACTICE
Residual dividend policy
DIVIDEND AND INVESTMENT POLICY
KEY FACTORS THAT INFLUENCE DIVIDEND POLICY
The presentation slide is on stock valuation. We have tried to present the various techniques to stock valuation under which different methods are discussed with illustrations. Key concepts:
Zero Growth Model
Balance sheet Technique
Constant Growth Model
Two-stage growth Model
Feel Free to comment.
What is Dividends
Types of cash dividends
Procedure for Dividend Payment
Ex-Dividend Date Is Important
Do Dividends Matter ?
DIVIDEND THEORIES
DIVIDENDS AND THE REAL WORLD
Dividends And Signaling
CLIENTELE EFFECT HYPOTHESIS
DIVIDEND POLICY PRACTICE
Residual dividend policy
DIVIDEND AND INVESTMENT POLICY
KEY FACTORS THAT INFLUENCE DIVIDEND POLICY
The presentation slide is on stock valuation. We have tried to present the various techniques to stock valuation under which different methods are discussed with illustrations. Key concepts:
Zero Growth Model
Balance sheet Technique
Constant Growth Model
Two-stage growth Model
Feel Free to comment.
This presentation covers the basics of Dividend Discount Model (DDM). Firstly, fundamental formula for valuing a stock using DDM is discussed. After that, 3 cases i.e DDM for zero growth, constant growth, and variable growth stocks, are discussed.
In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement – stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the expectation that undervalued stocks will, on the whole, rise in value, while overvalued stocks will, on the whole, fall.
Chapter 1 Introduction to Financial ManagementSafeer Raza
Chapter 1 of Financial Management by Van horn
Introduction to Financial management
Topics
Introduction
What is Financial Management
Investment Decision
Financing decision
Asset management Decision
Goal of the firm
Value creation or profit maximization
wealth maximization
Agency problems
Corporate Social Responsibility
Corporate governance
Organization of the financial management function
time value of money
,
concept of time value of money
,
significance of time value of money
,
present value vs future value
,
solve for the present value
,
simple vs compound interest rate
,
nominal vs effective annual interest rates
,
future value of a lump sum
,
solve for the future value
,
present value of a lump sum
,
types of annuity
,
future value of an annuity
This presentation covers the basics of Dividend Discount Model (DDM). Firstly, fundamental formula for valuing a stock using DDM is discussed. After that, 3 cases i.e DDM for zero growth, constant growth, and variable growth stocks, are discussed.
In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement – stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the expectation that undervalued stocks will, on the whole, rise in value, while overvalued stocks will, on the whole, fall.
Chapter 1 Introduction to Financial ManagementSafeer Raza
Chapter 1 of Financial Management by Van horn
Introduction to Financial management
Topics
Introduction
What is Financial Management
Investment Decision
Financing decision
Asset management Decision
Goal of the firm
Value creation or profit maximization
wealth maximization
Agency problems
Corporate Social Responsibility
Corporate governance
Organization of the financial management function
time value of money
,
concept of time value of money
,
significance of time value of money
,
present value vs future value
,
solve for the present value
,
simple vs compound interest rate
,
nominal vs effective annual interest rates
,
future value of a lump sum
,
solve for the future value
,
present value of a lump sum
,
types of annuity
,
future value of an annuity
Dividend policy
What is Dividend?
What is dividend policy?
Theories of Dividend Policy
Relevant Theory
Walter’s Model
Gordon’s Model
Irrelevant Theory
M-M’s Approach
Traditional Approach
Referred to:
Prasanna Chandra
Dividends of a corporation are declared by itsSolutionDividend.pdfaksamobilecare
Dividends of a corporation are declared by its
Solution
Dividends of a corporation are declared by its Board of Directors
A divedend is a distribution of a portion of a company\'s earnings, decided by the board of
directors, to a class of its shareholders. Dividends can be issued as cash payments as shares of
stock or other property.
Breking Down Dividend
The Dividend rate may be quoted in terms of the dollar amount each share receives(Dividend Per
Share OR DPS) or It can also be quoted in terms of a percent of the current market price, which
is referred to as the Dividend yield.
A company\'s net profits can be allocated to Shareholders via a dividend or kept within the
company as retained earnings. A Company may also choose to use net profits to repurchase their
own shares in the open markets in a share buyback. Dividends and share buy-backs do not
change the fundamental value of a company\'s shares. Dividend payments must be approved by
the shareholders and may be structured as a one-time special dividend, or as an ongoing cash
flow to owners and investors.
Mutual Fund and ETF shareholders are often entitled to receive accrued dividends as well.
Mutual funds pay out interest and dividend income received from their portfolio holdings as
dividends to fund shareholders. In addition, realized capital gains from the portfolio\'s trading
activities are generally paid out(Capital gain Distribution) as a year end Dividend.
Company that Issue Dividends
Start-ups and other high-growth companies such as those in the technology or biotechnology
sectors rarely offer dividends because all of their profits are reinvested to help sustain higher-
than-average growth and expansion. Larger, established companies tend to issue regular
dividends as they seek to maximize shareholder wealth in ways aside from Supernormal Growth.
Companies in the following sectors and industries have among the highest historical dividend
yields basic materials, Oil & Gases, Bank & FInancial, Healthcare & Phramacetucals.
Arguments for Issuing Dividends
The Bird-in-hand arguments
for dividend policy claims that investors are less certain of receiving future growth and capital
gains from the reinvested retained earnings than they are of receiving current (and therefore
certain) dividend payments. The main argument is that investors place a higher value on a dollar
of current dividends that they are certain to receive than on a dollar of expected capital gains,
even if they are theoretically equivalent.
In many countries, the income from dividends is treated at a more favorable tax rate than
ordinary income. Investors seeking tax-advantaged cash flows may look to dividend-paying
stocks in order to take advantage of potentially favorable taxation. The clientele effect
suggests especially those investors and owners in high marginal tax brackets will choose
dividend-paying stocks.
If a company has a long history of past dividend payments, reducing or eliminating the dividend
amount may s.
The dividend policies of an organization have a significant bearing on the market value of stocks. Companies must distribute dividends in line with the industry standards and previously distributed dividends by the company. The shareholders will otherwise perceive this variability negatively. It casts suspicion on the financial health and motives of the management (signaling effect). In aggregate, an inefficient dividend decision mechanism would adversely impact the valuation of the company.
Table of Contents
What are Dividend Decisions?
Impact of Dividend Decisions on Price
Factors affecting Dividend Decisions
Cash Requirement
Evaluation of Price Sensitivity
Stage of Growth
Good Dividend Policy
Importance of Dividend Decisions
Q. How much Dividend should a Company Distribute to its Shareholders?
Q. What will be the Impact of Dividend Decisions on the Share Prices of the Company?
Q. What is the Consequential Impact of Inability to Maintain Dividend Year after Year?
Types of Dividend Decision
Stable Dividends
Constant Dividends
Alternate Dividend Decisions
Factors affecting Dividend Decisions
Cash Requirement
The financial manager must take into account the capital fund requirements while framing a dividend policy. Generous distribution of dividends in capital-intensive periods may put the company in financial distress.
Evaluation of Price Sensitivity
Companies chosen by investors for their regularity of dividends must have a more stringent dividend policy than others. It becomes essential for such companies to take effective dividend decisions for maintaining stock prices.
Stage of Growth
Dividend decisions must be in line with the stage of the company- infancy, growth, maturity & decline. Each stage undergoes different conditions and therefore calls for different dividend decisions.
Good Dividend Policy
What Constitutes a Good Dividend Policy?
There does not exist a single dividend decision process that works for every organization. A decision suitable for one company may prove fatal for another company. For example, businesses with a consistent order book such as telecom and banking are expected to pay regular dividends. It may impact the stock prices if they do not pay dividends regularly. On the contrary, sectors of pharmaceutical and technology are highly research-oriented. These require huge cash expenses to further their operations. Therefore they cannot afford to pay a regular dividend. Investors of such stocks earn income mainly through capital appreciation. In essence, there are a lot of factors affecting dividend policy or decisions.
We can refer to the following renowned theories on Dividend Policy:
Modigliani- Miller Theory on Dividend Policy
Gordon’s Theory on Dividend Policy
Walter’s Theory on Dividend Policy
A good financial manager must, therefore, answer the following questions before taking crucial dividend decisions
Importance of Dividend Decisions
While deciding the distribution of dividends, management has to answe
This ppt is prepared to make familiar with the dividend policy which includes Types of Dividend policy, Procedure for declaring dividend, Why do companies declare dividend
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
Affordable Stationery Printing Services in Jaipur | Navpack n PrintNavpack & Print
Looking for professional printing services in Jaipur? Navpack n Print offers high-quality and affordable stationery printing for all your business needs. Stand out with custom stationery designs and fast turnaround times. Contact us today for a quote!
What is the TDS Return Filing Due Date for FY 2024-25.pdfseoforlegalpillers
It is crucial for the taxpayers to understand about the TDS Return Filing Due Date, so that they can fulfill your TDS obligations efficiently. Taxpayers can avoid penalties by sticking to the deadlines and by accurate filing of TDS. Timely filing of TDS will make sure about the availability of tax credits. You can also seek the professional guidance of experts like Legal Pillers for timely filing of the TDS Return.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
Business Valuation Principles for EntrepreneursBen Wann
This insightful presentation is designed to equip entrepreneurs with the essential knowledge and tools needed to accurately value their businesses. Understanding business valuation is crucial for making informed decisions, whether you're seeking investment, planning to sell, or simply want to gauge your company's worth.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
Skye Residences | Extended Stay Residences Near Toronto Airportmarketingjdass
Experience unparalleled EXTENDED STAY and comfort at Skye Residences located just minutes from Toronto Airport. Discover sophisticated accommodations tailored for discerning travelers.
Website Link :
https://skyeresidences.com/
https://skyeresidences.com/about-us/
https://skyeresidences.com/gallery/
https://skyeresidences.com/rooms/
https://skyeresidences.com/near-by-attractions/
https://skyeresidences.com/commute/
https://skyeresidences.com/contact/
https://skyeresidences.com/queen-suite-with-sofa-bed/
https://skyeresidences.com/queen-suite-with-sofa-bed-and-balcony/
https://skyeresidences.com/queen-suite-with-sofa-bed-accessible/
https://skyeresidences.com/2-bedroom-deluxe-queen-suite-with-sofa-bed/
https://skyeresidences.com/2-bedroom-deluxe-king-queen-suite-with-sofa-bed/
https://skyeresidences.com/2-bedroom-deluxe-queen-suite-with-sofa-bed-accessible/
#Skye Residences Etobicoke, #Skye Residences Near Toronto Airport, #Skye Residences Toronto, #Skye Hotel Toronto, #Skye Hotel Near Toronto Airport, #Hotel Near Toronto Airport, #Near Toronto Airport Accommodation, #Suites Near Toronto Airport, #Etobicoke Suites Near Airport, #Hotel Near Toronto Pearson International Airport, #Toronto Airport Suite Rentals, #Pearson Airport Hotel Suites
Explore our most comprehensive guide on lookback analysis at SafePaaS, covering access governance and how it can transform modern ERP audits. Browse now!
2. What are Dividends?
Dividends are corporate distributions to its shareholders
proportionate to the number of shares held by the latter.
Dividends may be in the form of cash dividends, bonus
issue (stock dividends), and property dividends.
A dividend is a distribution of corporate income to its
shareholders on a pro rata basis. Potential buyers and
sellers of a corporation’s shares are keenly interested in a
company’s dividends policies and practices. Dividends are
distributed out of accumulated earnings of the corporation
except of a liquidating dividend which represents a return
to the shareholders of their investment.
3. Types of Dividends
Type
Form of Payment
Cash Dividends
Cash
Stock Dividends
Shares of stock
Property Dividends
Non-cash assets
Scrip / Liability
Dividends
Notes or other evidence
corporate indebtedness
4. Relevant Dates
Date of Declaration
Date when the board of directors (BOD) formally approves and
announces the dividend. Reduction in RE is recognized in the
accounts.
Date of Record
Set by the BOD, the date on which all persons whose names are
recorded as stockholders will receive a declared dividend at a
specified future time. No entry made on this date.
Date of Payment
Set by the BOD, the actual date on which the payment of dividend
is made. Entry is made on this date to record the settlement of
dividend.
8. Dividend Reinvestment Plans (DRIPs)
Enable stockholders to use dividends received on the firm’s
stock to acquire additional shares, even fractional shares, at
little or no transaction cost.
With DRIPs, plan participants typically can acquire shares at
about 5% below the prevailing market price.
From its point of view, the firm can issue new shares to
participants more economically.
10. Residual Theory of Dividends
A school of thought that suggests that the dividend
paid by a frim should be viewed as a residual -- the
amount left over after all acceptable investment
opportunities have been undertaken.
Suggests that the required return of investors is not
influenced by the firm’s dividend policy – a premise
that in turn implies that dividend policy is irrelevant.
11. Three Steps in Making a Dividend Decision:
STEP 1: Determine the optimal level of capital
expenditures, which would be the level generated by
the point of intersection of the investment
opportunities schedule (IOS) and weighted marginal
cost of capital (WMCC) (as discussed in ‘The Cost of
Capital’)
12. STEP 2: Estimate the total amount of equity financing
needed to support the expenditures generated in Step
1using the optimal capital structure proportions (as
discussed in ‘Leverage & Capital Structure’)
13. STEP 3: Because the cost of retained earnings is less
than the cost of new common stock, use retained
earnings to meet the equity requirement determined
in Step2. If retained earnings are inadequate to meet
this need, sell common stock. If the available retained
earnings are in excess of this need, distribute the
residual as dividends.
15. Dividend Irrelevance Theory
By Merton H Miller and Franco Modigliani
Suggests that in a perfect world, the firm’s value is
determined solely by the earning power and risk of its
assets (investments) and that the manner in which it
splits its earnings stream between dividends and
internally retained (and reinvested) funds does not affect
this value.
16. Dividend Relevance Theory
By Myron J. Gordon and John Lintner
There is a direct relationship between a firm’s dividend
policy and its market value.
“A bird in the hand is worth two in the bush”
17. What is a Dividend Policy?
The firm’s plan of action to be
Followed whenever a dividend
decision is made.
20. Constant-Payout-Ratio Dividend Policy
• A dividend policy based on the payment of a certain
percentage of earnings to owners in each dividend
period
• Dividend payout ratio – indicates the percentage of each
dollar earned that is distributed to the owners in the
form of cash. It is calculated by dividing the firm’s cash
dividend per share by its earnings per share (EPS)
21.
22. Regular Dividend Policy
A dividend policy which is based on the payment of a
fixed-rate dividend in each period. This policy provides
the owners with generally positive information, thereby
minimizing their uncertainty. Often, firms that use this
policy increase the regular dividend once a proven
increase in earnings has occurred. Under this policy,
dividends are almost never increased.
23. • Often a regular dividend policy is built around a target
dividend-payout ratio.
• Target Dividend-Payout ratio is a dividend policy under
which the firm attempts to payout a certain percentage
of earnings as a stated dollar dividend and adjusts that
dividend toward a target payout as proven earnings
increases occurs.
24. Low-Regular-and-Extra Dividend Policy
A dividend policy based on paying a low regular dividend,
supplemented by an additional dividend when earnings
are higher than normal in a given period.
An extra dividend optionally paid by the firm if earnings
are higher than normal in a given period.
25. Stock Dividends
A stock dividend is the payment, to existing owners, of a
dividend in the form of stock.
Accounting Aspects – the payment of a stock dividend is a
shifting between stockholders’ equity accounts rather
than an outflow of funds.
A small stock dividend is a stock dividend that represents
less than 20 to 25% of the common stock
26. Other Forms of Dividends:
Stock Dividends
A stock dividend is paid in stock rather than in cash.
Many investors believe that stock dividends increase the value of their holdings.
In fact, from a market value standpoint, stock dividends function much like stock
splits. The investor ends up owning more shares, but the value of their shares is
less.
From a book value standpoint, funds are transferred from retained earnings to
common stock and additional paid-in-capital.
27. Other Forms of Dividends:
Stock Dividends (cont)
Accounting Aspects
The current stockholder’s equity on the balance sheet
of Garrison Corporation, a distributor of prefabricated
cabinets, is as shown in the following accounts.
28. Other Forms of Dividends:
Stock Dividends (cont)
Accounting Aspects
If Garrison declares a 10% stock dividend and the
current market price of the stock is $15/share, $150,000
of retained earnings (10% x 100,000 shares x
$15/share) will be capitalized.
The $150,000 will be distributed between the common
stock (par) account and paid-in-capital in excess of par
account based on the par value of the common stock.
The resulting balances are as follows
29. Other Forms of Dividends:
Stock Dividends (cont)
Accounting Aspects
Because 10,000 new shares (10% x 100,000) have
been issued at the current price of $15/share,
$150,000 ($15/share x 10,000 shares) is shifted
from retained earnings to the common stock and
paid-in-capital accounts.
30. Other Forms of Dividends:
Stock Dividends (cont)
The Shareholder’s Viewpoint
– From a shareholder’s perspective, stock dividends result in a
dilution of shares owned.
– For example, assume a stockholder owned 100 shares at $20/share
($2,000 total) before a stock dividend.
– If the firm declares a 10% stock dividend, the shareholder will have
110 shares of stock. However, the total value of her shares will still
be $2,000.
– Therefore, the value of her share must have fallen to $18.18/share
($2,000/110).
31. Other Forms of Dividends:
Stock Dividends (cont)
The Company’s Viewpoint
– Disadvantages of stock dividends include:
• The cost of issuing the new shares
• Taxes and listing fees on the new shares
• Other recording costs
– Advantages of stock dividends include:
• The company conserves needed cash
• Signaling effect to the shareholders that the firm is retaining cash
because of lucrative investment opportunities
32. Other Forms of Dividends:
Stock Splits
A stock split is a recapitalization that affects the number of shares
outstanding, par value, earnings per share, and market price.
The rationale for a stock split is that it lowers the price of the stock and
makes it more attractive to individual investors
Delphi Company, a forest products concern, had
200,000 shares of $2-par value common stock
outstanding and declares a 2-for-1 split. The total
before and after split impact on stockholders equity is:
34. Other Forms of Dividends:
Stock Splits (cont.)
A reverse stock split reduces the number of shares outstanding and raises stock
price—the opposite of a stock split.
The rationale for a reverse stock split is to add respectability to the stock and convey
the meaning that it isn’t a junk stock.
Research on both stock splits and stock dividends
generally supports the theory that they do not affect the
value of shares. They are often used, however, to send
a signal to investors that good things are going to
happen.
35. Other Forms of Dividends:
Stock Repurchases
A stock repurchase is the purchasing and retiring of stock by the
issuing corporation.
A repurchase is a partial liquidation since it decreases the number
of shares outstanding.
It may also be thought of as an alternative to cash dividends.
36. Other Forms of Dividends:
Stock Repurchases (cont.)
Alternative reasons for stock repurchases:
– To use the shares for another purpose
– To alter the firm’s capital structure
– To increase EPS and ROE resulting in a higher market price
– To reduce the chance of a hostile takeover
37. Other Forms of Dividends: Stock Repurchases Viewed as a
Cash Dividend
The repurchase of stock results in a type of reverse dilution.
The net effect of the repurchase is similar to the payment of a cash dividend.
However, if the firm pays the dividend, the owner would have to pay tax on
the income.
The gain on the increase in share price as a result of the repurchase,
however, would not be taxed until sold.