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DIVIDEND POLICY :star: - Coggle Diagram
DIVIDEND POLICY :star:
Definitions
A dividend is a discretionary payment made to shareholders as a return received from the company for their investment.
The dividend policy of a company imposes the amount, frequency and type of dividends the company will provide to its shareholders
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Dividend Payments
Holder of Record Date
It is the date when the shareholders register is closed after the trading day and the company can say who the shareholders that will receive dividends are.
Ex-dividend Date
It is the date when the value of the firm’s common shares will reflect the payment of dividends; it is the day on which all shares bought and sold no longer come attached with the right to receive the most recently declared dividend.
Declaration Date
It is the date when the Board of Directors announces the quantity of the dividend. It transforms the dividend in a current liability of the firm.
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Elements of dividend policy: the choice or decision to pay out earning vs. retaining and reinvesting them
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High or low pay-out
Investors assume dividends are less risky then potential future capital gains, so this is why they are fans of dividends
This theory is a direct counterpoint to the M&M's theory, that states the fact that investors do not care where their return comes from.
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The retained earnings lead to long-term capital gains, that will be taxed at lower rates than the dividends 20% rather than up to 39.6%
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In the situation the company's cash dividend is too large, it will be accesible to use the excess cash and but more stock. In the reverse situation when the cash dividend is too small, it is indicated to sell a small part of your stock
The theory is based on unrealistic assumption (no taxes), in this situation it may not be applicable but rather be an empirical test :no_entry:
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