Week 8 Lecture - Dividend Policy Dividend Imputation Tax...

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Dividend Policy Dividend Policy Imputation Tax System
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Topics Covered What is dividend policy How Are Dividends Paid Ex-dividend effects How Do Companies Decide on Dividend Payments? Information in Dividends Dividend Policy and Value The Rightists Taxes and the Radical Left The Middle of the Roaders Dividends & Taxes
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Defining Dividend Policy Defining Dividend Policy What is the effect of dividend policy holding invest and borrowing decisions constant ? Sources of Funds (Operations & Financing) = Uses of Funds (Dividends & Investments) Investment - Borrowing - Cash from Operations = Share issue - Dividends So dividend policy is a trade off between share issues and dividend payments
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Quiz Quiz 1. Which of the following dividends is never in the form of cash? A) Regular dividend B) Special dividend C) Stock dividend D) Liquidation dividend 2. Dividends are decided by: A) The managers of a firm B) The employees of a firm C) The board of directors D) The government
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Quiz Quiz 3. A stock dividend is essentially the same as: A) A stock split B) A stock repurchase C) A cash dividend D) None of the above 4. A DRIP is A ) Like having a leaky tap B ) Like a bonus issue C ) Like a stock split D ) A way of raising equity
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Dividend Payments Dividend Payments Many companies have dividend election plans, which allow you to take dividends as cash, or shares, or some combination of both. Cash Dividend - Distribution of cash to a firm’s shareholders. Dividends must notionally be “paid” from profits not capital. Companies can & do raise debt to pay dividends The cash dividend can be regular or special and may have franking credits (full or partial) attached.
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Dividend Payments Dividend Payments Share Dividends - Distribution of shares to shareholders. Bonus issues (stock dividend) - Extra shares issued as a dividend. May be a general issue to all shareholders, or shareholders may participate in a bonus plan. Distribution from “income” attracts income tax, but distribution from “capital” does not. General issue of bonus share, like a stock split, creates more paper, not more
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Dividend Reinvestment Plans Dividend Reinvestment Plans DRPs or DRIPs - Investor’s elect to reinvest their dividend in the company rather than take them in cash. The company issues new shares and the shareholder’s often get at a small discount (say 5%) to the ex-div price. DRP’s are an important source of equity finance, but sometimes the DRP is suspended. Tax treatment is as cash dividend. Asset backing increases
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Quiz Quiz 5. Which of these events occurs last in time (when arranged in chronological order)?
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Week 8 Lecture - Dividend Policy Dividend Imputation Tax...

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