Dividend Payout Policy
A firm’s payout policy refers to the choices its managers make about distributing cash to shareholders. ◦ Whether to pay shareholders a regular (recurring) cash dividend ◦ How large the cash dividend should be ◦ How frequently it should be paid The dividend payout ratio , calculated by dividing the cash dividend per share by its earnings per share, indicates the percentage of its profits that a firm distribute to its owners. The dividend yield , which equals a stock’s dividend divided by its price, measures the rate of return represented by the dividend payment. 2 Payout Policy Fundamentals
Procedure for Cash Dividend 25 Oct. 1 Nov. 2 Nov. 5 Nov. 7 Dec. Declaration Date Cum- dividend Date Ex- dividend Date Record Date Payment Date … Declaration Date : The Board of Directors declares a payment of dividends. Cum-Dividend Date : Buyer of stock still receives the dividend. Ex-Dividend Date : Seller of the stock retains the dividend. Record Date : The corporation prepares a list of all individuals believed to be stockholders 3 business days before, i.e. 5 Nov.