Session+22 (1)

Session 22(1)

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Unformatted text preview: 1 DIVIDENDS AND OTHER PAYOUTS Ross, Westerfield & Jaffe “Corporate Finance” 7th ed. Chapter 18 Dividend Payments: Chronology 2 January 15 Declaration date January 30 Record date January 28 February 16 Ex-dividend Payment date date Declaration date: Date on which the board of directors passed a resolution to pay a dividend Date of record: Date by which holders must be on company’s records to receive a dividend Ex‐dividend date: Date two business days before the date of record, establishing those entitled Date of payment: Date that the dividend checks are mailed 3 Price Behavior Around the Ex‐dividend Date A stock currently sells for $10 per share. The board of directors declares a dividend of $1 per share to all holders as of Tuesday, June 12. Ex‐dividend date will therefore be Friday, June 8 Ex Date ‐t . . . ‐2 ‐1 0 +1 +2 . . . +t Price=$10 The stock price will fall by the amount of the dividend on the ex date i.e. the new price = 10‐1 = $9 Price = $9 Stock Repurchases 4 An alternative to cash dividends Taxed as capital gains where dividends are taxed as ordinary income. Tax advantage due to the fact that in a repurchase shareholder pays tax if: S/he chooses to sell Earns capital gain on the sale Tax authorities do not allow a repurchase if tax avoidance is suspected Repurchases have gained in popularit...
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This note was uploaded on 04/09/2012 for the course FINN 321 taught by Professor Farahsaid during the Spring '12 term at Alvin CC.

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