Rate of return for the money then the stockholders

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rate of return for the money then the stockholders can then they should keep the money and reinvest it. Different investors within the firm what different dividend policy this is called the Clientele effect because sometimes a firm would attract different kind of investors depending on what policy it set up. Older investors would like a regular dividend payout and would prefer it to be bigger, while younger investors would prefer that the company reinvests the cash in capital gains so that the company with grow larger and their stock will be bigger in the future, but the firm most find what kind of stockholders it wants to invest in its firm and set up the dividend policy accordingly. The firm most also look at its investment opportunities if they are in an industry that is always reinventing itself like the technology sector then they should look at a low dividend policy. The firm could also be limited by the investment opportunity available to them and if they cannot find a good return on investment then they should look at having a higher dividend policy. Management must be aware that when setting up a dividend policy that the free cash flow really belongs to the stockholders and they should find a policy that gives them the best return on investment.
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Many people within business believes that there is an optimal price range for a stock and if it goes too far above it then they can do what is called a stock split which is where they usually issue you two stock for the one you have now. Most think the optimal level it for 20 to 80 dollars so if a company let’s say Smith Inc. stock was trading at 80 dollars then management would want to split the stock. It would issue a two for one stock split so now you would have two stocks worth about 40 dollars apiece. The value of the stock is the same as it was before the stock split but if the market would to raise the price of the stock then it would gain for money for the investor instead of just the single share. Stock dividends are a way for a firm to control the price of stocks without the need to a stock split. Stock dividends work in the same way as a stock split except that instead of a 2 for 1 exchange you can 5 percent exchange which means in you had 50 shares then after the stock dividend you would gain 5 more shares. Stock dividends are more of a way of controlling the price of the stock; with a yearly stock dividend you are able to keep the price of the stock in line without affecting the position of stock holders. The policies of stock repurchases have many advantages and disadvantages it fall to the firm and management to decide what is best for the stock holders. The advantages of a stock repurchase is that it signals to investors that the firm is doing well and is actively trying to keep it as profitable as possible. The stock repurchase also gives the stock holder a choice of it wants to sell its stock for the amount the firm is offering or to keep it. Dividends give the stockholder no
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