Let's today to know something about Dividend...... A dividend is an extra income to dividend holder which totally tax-free in hands of Receiver which is considered the source of income.
venture capital, process of venture capital, stages of venture capital, stages and process of venture capital, early stage finance, later stage financing,
venture capital, process of venture capital, stages of venture capital, stages and process of venture capital, early stage finance, later stage financing,
2- Compare teh payment of cash divididends- stock dividends and purcha.docxlcarolyn
2. Compare teh payment of cash divididends, stock dividends and purchase of treasury stock from existing shareholders. What are the similiarities and differences? If you were a corporate treasurer, which method would you recomend for returning funds to stock holders?
Solution
Dividends are payments made by a corporation to its shareholder members. [ It is the portion of corporate profits paid out to stockholders.[1]
When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders. There are two ways to distribute cash to shareholders:
share repurchases or dividends.[2][3] Many corporations retain a portion of their earnings and pay the remainder as a dividend. stock dividend A dividend paid as additional shares of stock rather than as cash. If dividends paid are in the form of cash, those dividends are taxable.
When a company issues a stock dividend, rather than cash, there usually are not tax consequences until the shares are sold.
Companies often buy back their own stock which lowers the number of shares outstanding. When a company does a stock buyback, the stocks they purchase on the open market become known as treasury stock. These stocks do not pay dividends nor do they have voting rights. Treasury stocks are not included in shares outstanding calculations.
When a company buys back its own shares, it can either be advantageous to the shareholders or a detriment depending on the motivation for buying back the shares in the first place. If the company is seeking to boost its financial ratios such as their P/E ratio or earnings per share ratio, then the shareholders
.
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
Process for Declaration & Payment of DividendLegalDelight
“Dividend” means a distribution of any sums to Members by the Company out of profits and wherever permitted out of free reserves available with the Company.
Dividend is basically a return on investment made by an investor in any Company. Generally when business of any company is thriving, Company either resorts to reinvest the profits into the business or distribute a part of their earning among the shareholders as dividend on shares.
Based on the profit or retained earnings, management of the Company may decide for quantum of the dividend to be paid.
What are Dividends? UK Limited Company DividendsGoForma
Limited company dividends refer to the distribution of profits that a company makes to its shareholders. In the United Kingdom, a limited company is a business structure that has its finances separate from the personal finances of its owners (shareholders). When a limited company generates profits, the directors may choose to distribute a portion of these profits to shareholders in the form of dividends.
It is a market place where shares of public companies are bought and sold
It is commonplace where the issuers of the shares & subscribers of the shares come together
Political risk is the risk that arises out of uncertainty and instability within the government framework or political institutions in a country.
To know more about it, refer to the following article:
https://efinancemanagement.com/investment-decisions/political-risk
Pegged Exchange Rates are exchange rates that are set by way of “pegging” of one’s currency with another country’s currency or some other valuable measure, such as gold.
To know more about it, click on the link given below:
https://efinancemanagement.com/international-financial-management/pegged-exchange-rate
A debt market instrument specifically a Note, which mostly matures between 5 years to 10 years is known as a Medium Term Note (MTN).
To know more about it, click on the link given below:
https://efinancemanagement.com/sources-of-finance/medium-term-note
IBF is a facility wherein the US Banking institutions provide banking services such as granting loans, accepting deposits, to foreign residents and foreign banks.
To know more about it, click on the link given below:
https://efinancemanagement.com/international-financial-management/banking-facility
Risk aversion is an approach to making investments in safe and stable financial instruments, even though if they provide limited or low returns. The opposite of risk aversion is “Risk Tolerance”.
To know more about it, click on the link given below:
https://efinancemanagement.com/investment-decisions/opposite-of-risk-aversion
Development Impact Bond or (DIB) is a financial tool that helps to fund development projects, usually of social nature.
To know more about it, click on the link given below:
https://efinancemanagement.com/sources-of-finance/development-impact-bond-dib
The concept of the Security Market Line is very popular for portfolio management. It helps to derive the pricing of risky securities by plotting their expected returns.
To know more about it, click on the link given below:
https://efinancemanagement.com/investment-decisions/security-market-line
A bond that releases interest payments on the basis of a particular price index is known as Indexed Bonds or Index-Linked Bonds or Inflation-Indexed Bonds.
To know more about it, click on the link given below:
https://efinancemanagement.com/sources-of-finance/indexed-bonds-meaning-examples-advantages-and-more
Maturity Risk Premium is basically the extra return that an investor demands or gets for bearing the maturity risk. We can say, longer the maturity of a financial instrument, the more is the maturity risk premium it offers.
To know more about it, click on the link given below:
https://efinancemanagement.com/investment-decisions/maturity-risk-premium-meaning-need-and-calculation
Cross Hedge is a futures contract strategy or a financial strategy to offset or minimize the loss from one asset from the profits of the other asset.
To know more about it, click on the link given below:
https://efinancemanagement.com/investment-decisions/cross-hedge
Functional Currency (FC), as the word suggests, is the currency of the location or the economic environment in which a firm works.
To know more about it, click on the link given below:
https://efinancemanagement.com/international-financial-management/functional-currency-meaning-importance-how-to-determine
An exchange rate system in which the value of a currency is determined not only by the forces of demand and supply but also through some form of intervention by the central government or central banking regulator of that country is known as a dirty float.
To know more about it, click on the link given below:
https://efinancemanagement.com/international-financial-management/dirty-float
Blue Sky Laws are state regulations and their purpose is to safeguard investors from securities fraud. And these being the laws promulgated by the states, there may be some variations in the rules and regulations state-wise for these blue sky laws.
To know more about it, click on the link given below:
https://efinancemanagement.com/investment-decisions/blue-sky-laws
The term FACTORING in finance stands for the act of buying a company’s rights to collect payments from its debtors or accounts receivables and charging the company for this service.
To know more about it, click on the link given below:
https://efinancemanagement.com/working-capital-financing/how-do-factoring-companies-work
A group of ratios that shows how efficiently the company is managing its assets to generate and maximize sales revenues is known as Asset Management Ratios.
To know more about it, click on the link given below:
https://efinancemanagement.com/financial-management/asset-management-ratios-types-interpretations-advantages-disadvantages-and-more
Structured notes are securities having a combination of derivatives and bond components, tailored to help investors with little risk appetite to invest in high to medium risk assets.
To know more about it, click on the link given below:
https://efinancemanagement.com/sources-of-finance/structured-notes
Commodity funds are the funds that invest in commodities like rice, corn, or metals like gold. Like funds investing in stocks, the returns on commodity funds are also linked to the performance and price movements of these commodities in the market.
To know more about it, click on the link given below:
https://efinancemanagement.com/investment-decisions/commodity-fund
Nicholas Brady is the inspiration for the Brady bonds. In 1989, when Brady was the U.S. Treasury secretary, he came up with a proposal to help reduce the debt of the developing countries.
To know more about it, click on the link given below:
https://efinancemanagement.com/sources-of-finance/brady-bonds-meaning-history-how-it-works-and-more
In forfaiting, exporters sell their trade receivables from the importers to a third party. This means that the exporters exchange their trade receivables with a third party for cash.
To know more about it, click on the link given below:
https://efinancemanagement.com/financial-accounting/forfaiting
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
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3. A dividend is the share of profits and retained earnings a
company pays out to its shareholders. When a company
generates a profit and accumulates retained earnings,
those earnings can be either reinvested in the business or
paid out to shareholders as a dividend. The annual dividend
per share divided by the share price is the dividend yield.
A share of the after-tax profit of a company, distributed to
its shareholders according to the number and class of
shares held by them.
Smaller companies typically distribute dividends at the end
of an accounting year, whereas larger, publicly held
companies usually distribute it every quarter. The amount
and timing of the dividend is decided by the board of
directors, who also determine whether it is paid out of
current earnings or the past earnings kept as reserve.
4. 1.Cash Dividend:-This is the most common type of
dividend under which there is the actual payment of
the cash by the company to its shareholders directly.
Generally, the shareholder’s payment is done
electronically but the same may be given in the form of
cash or check.
2.Stock Dividend:-This is the type of dividend under
which the company issues the common stock to
the present common shareholders without taking any
form of consideration. The treatment of the stock
dividend depends on the percentage of an issue with
respect to the number of the total previous share
issue.
5. 3.Property Dividend:-Rather than giving a cash dividend or
stock dividend to the investors, the company may give a non-
monetary dividend. The company, in that case, has to record
the distribution of non-monetary dividend at distributed asset’s
fair market value. In case the fair market value of the assets
distributed is different from the book value of assets then the
company has to record the variance in form of the gain or loss
as applicable in the case.
4.Scrip Dividend:-This is the type of dividend under which the
Company issues the scrip dividend in a case as per the
situation it is prevailing that in near future company might not
have sufficient funds for issuing the dividends. Thus this type
of dividend is a promissory note to pay the shareholders of the
company at the later date. This scrip dividend creates the note
payable which may include interest or may not include.
6. 5.Liquidating Dividend:- This type of dividend is
where the originally contributed capital is returned
back to the shareholders mainly at the time of shutting
down of the business.
6.Bond Dividend:-The Bond Dividends are similar to
the scrip dividends, but the only difference is that they
carry longer maturity period and bears interest. As in
scrip dividends, dividends are not paid immediately in
bond-dividends; instead company promises to pay
dividends at future date and to that effect issues
bonds to stockholders in place of cash. The purpose of
both bond and scrip dividends is alike which postpone
of dividend payment.