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CFS C7TX: Dividend policy (share buy-backs and special dividends (key…
CFS C7TX: Dividend policy
introduction
defining the problem
dividend policy is the determination of the proportion of profits paid out to shareholders- usually periodically
a. some background
key terms: interim dividend, final dividend, accumulated distributable profits
Miller and Modigliani's dividend irrelevancy proposition
according to M&M 1961 paper, if a few assumptions can be made, dividend policy is irrelevant to share value, The determinant of value is the availability of projects with positive NPVs, and the pattern of dividends makes no difference to the acceptance of these
key term: homemade dividends
dividends as a residual
a. what about the world in which we live?
clientele effects
natural clienteles
Taxation
dividends as conveyors of information
key terms: conveyors of information, information asymmetry
resolution of uncertainty
bird-in-the-hand fallacy
owner control (agency theory)
scrip dividends: gives shareholders an opportunity to receive additional shares in proportion to their existing holding instead of the normal cash dividend
share buy-backs and special dividends
key terms: buy-backs, special dividend
a round-up of the arguments
there are 2 questions at the core of the dividend policy debate
question 1: can shareholder wealth be increased by changing the pattern of dividends over a period of years
question 2: is a steady, stable dividend growth rate better than one which varies from year to year depending on the firm's internal need for funds?
concluding comments
key term: maintainable regular dividend, a suggested action plan
key points and concepts