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11. FIN 301 - F09 Dividends - Dividends Seminar11 Dividends...

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Dividends Seminar 11
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2 Dividends distribution of part of a company's earnings  to its stockholders. usually quoted in terms of the dollar  amount each share receives dividends per share ( DPS or D) = dividends / shares outstanding dividend yield ( DY) = dividends per share/share price
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3 Price Behavior around the Ex-Div Date
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4 Example 1: Going Ex-Dividend VAKKO Inc, which has 100,000 shares  outstanding, declared a cash dividend of $0.80  per share. The  market values of the firm’s  assets and liabilities are as given below:
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5 Example 1: Going Ex-Dividend a. If tomorrow is the ex-dividend date, what is  the share price today? b. What will be the price tomorrow?  (Ignore  taxes) $9.20 $0.80 - $10.00 DPS P P dividend - cum dividend - ex = = - = $10.00 100,000 $1,000,000 Shares of Number Equity of Value Market P P today today dividend - cum today = = = =
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6 Example 1: Stock Repurchase c. Suppose the firm repurchases $80,000  worth of stock instead of paying dividends –  what will be the price tomorrow? after the repurchase, the firm’s balance sheet  looks like: (Note that both cash and equity have decreased by  $80,000)
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