Академический Документы
Профессиональный Документы
Культура Документы
2
3
How dividends are paid
4
Timeline of dividend payments
2 business
days 2-3 weeks
6
Dividend yields for selected companies
http://www.dividenddetective.com/big_dividend_list.htm
http://www.indexarb.com/dividendYieldSorteddj.html
7
Dividend yields for selected industries
8
General Motors Dividends
20
10
0
1993 1995 1997 1999 2001 2003 2005 2007
-10 Special
Dividend
-20
-30 DPS
-40
EPS
-50
-60
-70
-80
9
Caterpillar Dividend Policy
4
DPS
3
EPS
2
0
1993 1995 1997 1999 2001 2003 2005 2007
10
Do investors prefer high or low
payouts? There are three theories:
11
Dividend irrelevance theory
12
Bird-in-the-hand theory
13
MM dividend policy irrelevancy proposition
14
MM dividend policy irrelevancy example
The firm will be dissolved in one year (remaining assets are worth
Zero).
Managers know that the firm will receive a cashflow of $10,000 today,
and another $10,000 next year. The firms cost of capital is 10%.
According to the new policy, Thuy gets $11, keeps $10, and invests
the extra dollar at 10% to get $1.1 next year.
Next year she gets $8.90 in dividends plus the return in the $1
invested ($1.1), a total of $10.
Thus, she can replicate her cashflows under the original dividend
policy.
18
Implications of 3 theories for managers
Theory Implication
19
Which theory is correct?
20
Possible stock price effects
30 Irrelevance
20
Tax preference
10
23
Whats the information content, or
signaling, hypothesis?
24
Whats the residual distribution
model?
[( )( )]
Distr. = Net Total .
income Target
equity capital
ratio budget
Capital budget: $800,000. Given.
Target capital structure: 40% debt, 60% equity. Want
to maintain.
Forecasted net income: $600,000.
If all distributions are in the form of dividends, how
much of the $600,000 should we pay out as
dividends?
26
Using the residual model to calculate
distributions paid
Net
Distr. = income
[( )( )]
Target
equity
ratio
Total
capital
budget
.
28
Using the residual model to
calculate distributions paid
Residual Model
30
Stock repurchases
31
Advantages of repurchases
32
Disadvantages of repurchases
33
Setting dividend policy
Forecast capital needs over a planning
horizon, often 5 years.
Set a target capital structure.
Estimate annual equity needs.
Set target payout based on the residual
model.
Generally, some dividend growth rate
emerges. Maintain target growth rate if
possible, varying capital structure somewhat
if necessary.
34
Stock dividends vs. Stock splits
Stock dividend: Firm issues new shares in lieu of
paying a cash dividend. If 10%, get 10 shares for
each 100 shares owned.
Stock split: Firm increases the number of shares
outstanding, say 2:1. Sends shareholders more
shares.
Both stock dividends and stock splits increase the
number of shares outstanding, so the pie is
divided into smaller pieces.
Unless the stock dividend or split conveys
information, or is accompanied by another event
like higher dividends, the stock price falls so as to
keep each investors wealth unchanged.
But splits/stock dividends may get us to an
optimal price range. 35
When should a firm consider
splitting its stock?
Theres a widespread belief that the optimal price range
for stocks is $20 to $80.
Stock splits can be used to keep the price in the optimal
range.
Stock splits generally occur when management is
confident, so are interpreted as positive signals.
37
Open market purchase plan
Dollars to be reinvested are turned over to trustee,
who buys shares on the open market.
Brokerage costs are reduced by volume purchases.
Convenient, easy way to invest, thus useful for
investors.
New stock plan
Firm issues new stock to DRIP enrollees, keeps money
and uses it to buy assets.
No fees are charged, plus sells stock at discount of 5%
from market price, which is about equal to flotation
costs of underwritten stock offering.
Firms that need new equity capital use new stock plans.
38
39
Topics: Dividends and dividend policy
40
Real-world factors for low payout
44
A compromise dividend policy
45