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Managerial Finance Dividend Policy (CH 17) - Coggle Diagram
Managerial Finance
Dividend Policy (CH 17)
Types of Dividends
Regular Cash Dividend
Regular cash payments
Extra cash dividend/Bonus dividend
extra payment that may not happen in the future
Special cash dividend
Like extra cash but WILL NOT be repeated
Liquidating dividend
Paid after company has been sold/ mostly sold
Scrip dividend
Note that says dividend will be paid later
Dividend in kind
Non-monetary dividend (assets, goods and service offered as D)
Stock dividend
Dividend paid through company stocks
Dividend Payments
Declaration date
Day dividend is announced
Ex - divdend date
2 days before date of record
Stock after this will not receive Div
Stock price drops by amount of dividend
If taxed then it drops by amount of dividend after tax
Date of Record payment
Records who will receive the dividend
Date of payment
Dividend Policy Decisions
Irrelevance
When there are no taxes or other market imperfections
Shareholders can undo the strategy through reinvesting dividends or selling part of their share holdings
Why are there Low Payouts?
Suits people in upper income tax brackets due to taxs on divs
Lower flotation costs
Dividend restrictions limits amount paid as dividends
Gives free cash
Used to repurchase stocks and financial assets of other comapnies
Why are there High Payouts?
Better for individuals in low tax brackets
No guarantee that there will be higher future dividends
Dividend exclusion of taxes for corps.
Good for tax-exempt investors
Residual Dividend Policy
Dividends are paid after meeting its investment need and target capital structure
Sticky Div Policy
Dividend amount is the same year after year
Compromise Div Policy
Bases dividend amount on: Avoiding cutting + NPV projects, dividend cuts, need to sell equity, maintain target D/E ratio, and maintain a target divi payout ratio
Alternatives to Cash Dividends
Stock Repurchase
Company buys back its stocks
Tender offer
Company states $ and number of shares and asks existing SH to tender their shares
Open market
Buys stock in public market
Stock Dividends
Paywith stocks instead of cash
Increases number of shares
100 shares will receive 15 extra if 15% stock div
Shareprice in the market will decrease b/c accounting
Stock Splits
1 stock exchanged for multi stocks
Stock $ decreases
Shareholder ownership is netural
Return price to a more desirable trading range
Reverse Stock Split
old stocks exchanged for 1 new stock
Reduces transactions for cost SH
Improved marketability of stocks since price is raised to a better range
Maintain trading at exchanges
Signals from Dividends
Dividend Increase
Investors think that mangement can sustain higher div
Signals healthy and growing firm
Expectation of higher future divs, increasing present value
For both, it could signal the opposite
Dividend decrease
Firms cant sustain current level of divs
Expectation of lower dividends in the future
Signal of firm having financial diffculties