This document discusses dividend policy and different types of dividends. It introduces the concepts of cash dividends, stock dividends, and liquidating dividends. It also discusses approaches to dividend policy including the residual dividend approach and compromise dividend policy. The residual approach determines how much funds can be generated without new equity and whether to pay a dividend. The document provides an example comparing paying a cash dividend versus doing a share repurchase and their impact on shareholder wealth and EPS.

1. Pertemuan 6
Rabu, 14 November 2012

2. DIVIDENDS AND DIVIDEND POLICY

3. Introduction
• Dividend: A payment made out of a firm’s
earnings to its owner
• Distribution: a payment made by a firm to its
owner from sources other than current or
accumulated retained earning
• Jenis Dividend:
– Cash Dividend
– Stock Dividend
– Liquidating Dividendl

4. Dividend?
• Dividends are irrelevant?
• Dividends policy is irrelevant?
• Why do we pay lower dividend?
– Tax
– Flotation Cost
– Restriction
• Why do we pay higher dividend?
– Desire Income
– Uncertainty Resolution
– Tax

5. Dividend Policy
• Residual Dividend Approach
– Meet corporate’s investment needs and maintain
its desired debt to equity ratio
• Step
– Determine the amount of funds that can be
generated without selling new equity
– Decide whether or not a dividend will be paid

6. Residual Dividend Policy
• Example:
• Debt to Equity ratio = 1:2

7. Residual Dividend Policy

8. Dividend Stability
• Residual approach might lead to very unstable
dividend policy
• Ada dua tipe:
– Dividend kuartal disesuaikan dengan laba kuartal
– Dividend kuartal disesuaikan dengan laba tahunan

9. Dividend Stability

10. Compromise Dividend Policy
• Kebijakan dividend bergantung dari 5 goals:
– Avoid cutting back on positive NPV projects
– Avoid dividend cuts
– Avoid the need to sell equity
– Maintain target debt equity ratio
– Maintain target dividend payout ratio
• Tergantung bagaimana perusahaan
mengurutkan tujuan yang paling penting

11. Alternative: Stock Repurchase
• Perusahaan membeli saham dari para
shareholder  capital gain yang diperoleh
shareholder adalah dividen terselubung
• Example:
– Shares outstanding = 100,000
– Net Income = $ 49,000
– EPS = $ .49; PER = 20.4

12. Paid Cash Dividend
• Bayar cash dividend $ 300,000  $3 per share
• Price per share $10  $7
• Shareholder’s wealth (100 shares)
– ($7 x 100) + ($3 x 100) = $ 1,000
• EPS = $ .49; PER = 20.4  14.3

13. Repurchase Shares
• Repurchase 30,000 shares = $ 300,000
• Price per share $10 ($700,000 / 70,000 shares)
• Shareholder’s wealth (100 shares  70
shares)
– ($10 x 70) + ($10 x 30 ) – homemade dividend
• EPS = $.49  $.70; PER 20.4  14.3

14. Issues
• Real World Consideration
– Transaction Cost
– Tax Treatment
• Tax on dividend and tax on capital gain
• EPS
– EPS is just an accounting adjustment