Week 11 - Week 11 Payout policy Paul Dou Objectives and...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 11: Payout policy Paul Dou
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Identify why payout policy may be important. Identify the framework within which payout policy is decided. Appreciate the effects of different taxation structures on payout policy. Appreciate how the desire to signal information may influence payout policy. Appreciate how transaction costs may influence payout policy. Objectives and learning outcomes of the module
Background image of page 2
Payout policy: the firm’s policy to reward its shareholders: Cash dividend Bonus share issue (share dividend) Share split Share repurchase (share buyback) Dividend Re-Investment Plan (DRIP) Aim of payout policy: to maximize the value (wealth) of shareholders Introduction
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Dividend payment : A chronology 24 Aug (Wed) 5 Sept (Mon) 9 Sept (Fri) 28 Sept (Wed) A real life example : BHP Billiton for year 2008 Declaration date Ex-dividend date Record date Payment date
Background image of page 4
Declaration date: BHP’s board of directors declare the amount of dividend per share. Ex-dividend date: If you buy the share before this date, you are entitled to the dividend. Conversely, if you buy the share on or after this date, the previous shareholder will get the dividend. Dividend payment: A chronology
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Dividend payment: A chronology Ex-date (5 Sept) -2 -1 0 1 2 … $100 About $90 Dividend declared = $10
Background image of page 6
Record date: in the example, record date is 4 days after the ex-dividend date; thus allowing BHP to record the information (e.g. mailing address etc) of all investors who have bought the shares before the ex-date. Payment date: dividends are paid. Dividend payment: A chronology
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Dividend policy : policy of whether the firm should pay out the cash now or retain the earnings for reinvestments and pay it out later. In perfect capital markets, Modigliani and Miller (MM) show that dividend policy is irrelevant . Does dividend policy matter? MM proposition III (dividend irrelevance proposition) : Dividend policy has no impact on the value of the firm
Background image of page 8
MM proposition III can be justified based on the concept of ‘homemade dividend’. Scenario 1 : Suppose you (investor) prefer to receive $100 in both year 0 and 1. Assume a cost of equity of 10%. But BHP adopts a different dividend policy of paying $110 dividend per share (dps) in year 0 and $89 dps in year 1. Does dividend policy matter?
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 37

Week 11 - Week 11 Payout policy Paul Dou Objectives and...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online