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Unformatted text preview: st to receive this dividend. III. Dividend Reinvestment Plans (DRIPS) Stockholders can automatically reinvest their dividends in the stock of the dividend paying corporation. 2 Types: 1) Old Stock Plan: outstanding shares are repurchased on the open market. 2) New Stock Plan: new shares are issued, therefore new capital is raised. IV. Stock Repurchases Why do firms repurchase stock? A. Have the cash and distribute it by buying stock instead of paying dividends. B. Capital structure may be too heavily weighted with equity; firm sells debt and uses proceeds to repurchase stock. C. Firm has issued options and may repurchase stock when options are exercised. Repurchases may be: Open market purchases Negotiated purchases Tender Offers V. Stock Splits Ex: With a 2:1 split, prior to the split you own 100 shares @ $100 per share = $10,000 After split, you own 200 shares @ $50 per share = $10,000...
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- Fall '08