chapter 15 - COPYRIGHT©ZHULI 1 Chapter 15 Payout policy...

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Unformatted text preview: COPYRIGHT©ZHULI 1 Chapter 15 Payout policy COPYRIGHT©ZHULI 2 Objectives 1. Describe how dividends are paid and how companies decide on dividend payments 2. Explain how stock repurchases are used to distribute cash to shareholders 3. Explain why dividends and repurchases may be used to signal the prospects of the firm 4. Explain why payout policy would not affect firm value in an ideal world 5. Show how differences in the tax treatment of dividends and capital gains might affect payout policy COPYRIGHT©ZHULI 3 Content How companies pay out cash to shareholders The dividend payment Stock repurchases How do companies decide on the payout Why payout policy should not matter Why dividends may increase firm value Why dividends may reduce firm value COPYRIGHT©ZHULI 4 Companies can pay out cash to their shareholders in two ways. They can pay a dividend, or they can buy back some of their outstanding shares. COPYRIGHT©ZHULI 5 Content How companies pay out cash to shareholders The dividend payment Stock repurchases How do companies decide on the payout Why payout policy should not matter Why dividends may increase firm value Why dividends may reduce firm value COPYRIGHT©ZHULI 6 Cash dividend : Payment of cash by the firm to its shareholders. Regular dividend Special dividend Ex-dividend: Without dividend. Buyer of a stock after the ex-dividend date does not receive the most recently declared dividend. COPYRIGHT©ZHULI 7 Some legal limitations on dividends Bondholders often place a limit on dividend payments. State law also helps to protect the firm’s creditors against excessive dividend payments. COPYRIGHT©ZHULI 8 Stock dividends and stock splits Stock dividend : distribution of additional shares to a firm’s stockholders. Stock split : issue of additional shares to firm’s stockholders. A two-for-one stock split is like a 100% stock dividend. Both result in a doubling of the number of outstanding shares, but they do not affect the company’s assets, profits, or total value. COPYRIGHT©ZHULI 9 Cash dividend: a & & & Ex-dividend: a& Stock dividend: a& & & Stock Split: a& & & COPYRIGHT©ZHULI 10 Content How companies pay out cash to shareholders The dividend payment Stock repurchases How do companies decide on the payout...
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chapter 15 - COPYRIGHT©ZHULI 1 Chapter 15 Payout policy...

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