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lec 10 dividend policy - Coggle Diagram
lec 10 dividend policy
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signaling hypothesis:
- managers hate to cut div, so they wont raise div unless raise is sustainable. so, investors view div increase as a signals of management's view of the future
- div changes may convey information
- therefore, the stock price increase in the time of div incre reflect higher expectations for future EPS,
- clientele effect:
- different investors, clienteles prefer different dividend policies
- firm's dividend policies determines its current clientele of investors
- different group disire different levels of dividends
- high tax bracket investors prefer low payouts
- low tax bracket investors prefer high payout
- clientele effects impede changing dividend policy. Taxes and brokerage costs hurt investors who have to switch companies.
- RESIDUAL DIVIDEND MODEL:
- target payout based on residual model :v
- finding retained earning needed for capital budget
- payout leftover earnings (the residual) as dividens if more earnings are available than are need to support the optimal capital budget
- this policy reduce flotation and equity signaling costs, hence min WACC
- comments:
- Advantage-min new stock issue and flotation cost
- Disadvantage: results in variable dividends, sends conflict signals, increase risk, and doesnt appeal to any specific clientele
=> conclusion: consider residual policy when setting long-run target payout, but dont follow rigidly.
- dividend reinvestment plan (DRIP: Kế hoạch tái đầu tư cổ tức )
- shareholder can automatically reinvest their dividends in share of com's common stock.
- there are two types of plan:
- Open market:
- dollars to be reinvented are turned over to trustee, who buys share on the open market
- Brokerage costs are reduced by volume purchase
- convenient, easy to invest, thus useful for investor
- New stock plan:
- firm issues new stock to DRIP enrollees ( usually at discount form market price) to keep money and use it to buy assets
- firm that need new equity capital use new stock plans
- firm dont need new equity capital use open market purchase plan
- most NYSE listed com have DRIP, useful for investors
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