Chapter 12 - Dividend policy. In this chapter, the learning objectives are: Understand cash dividend payment procedures, the tax treatment of dividends, and the role of dividend reinvestment plans; describe the residual theory of dividends and the key arguments with regard to dividend irrelevance and relevance. | Chapter 12 Dividend Policy Learning Goals Understand cash dividend payment procedures, the tax treatment of dividends, and the role of dividend reinvestment plans. Describe the residual theory of dividends and the key arguments with regard to dividend irrelevance and relevance. Discuss the key factors involved in establishing a dividend policy. Learning Goals (cont.) Review and evaluate the three basic types of dividend policies. Evaluate stock dividends from accounting, shareholder, and company points of view. Explain stock splits and stock repurchases and the firm’s motivation for undertaking each of them. Dividend Fundamentals A dividend is a redistribution from earnings. Most companies maintain a dividend policy whereby they pay a regular dividend on a quarterly basis. Some companies pay an extra dividend to reward shareholders if they’ve had a particularly good year. Many companies pay dividends according to a preset payout ratio, which measures the proportion of dividends to . | Chapter 12 Dividend Policy Learning Goals Understand cash dividend payment procedures, the tax treatment of dividends, and the role of dividend reinvestment plans. Describe the residual theory of dividends and the key arguments with regard to dividend irrelevance and relevance. Discuss the key factors involved in establishing a dividend policy. Learning Goals (cont.) Review and evaluate the three basic types of dividend policies. Evaluate stock dividends from accounting, shareholder, and company points of view. Explain stock splits and stock repurchases and the firm’s motivation for undertaking each of them. Dividend Fundamentals A dividend is a redistribution from earnings. Most companies maintain a dividend policy whereby they pay a regular dividend on a quarterly basis. Some companies pay an extra dividend to reward shareholders if they’ve had a particularly good year. Many companies pay dividends according to a preset payout ratio, which measures the proportion of dividends to earnings. Many companies have paid regular dividends for over a hundred years. Dividend Fundamentals (cont.) Dividend growth tends to lag behind earnings growth for most corporations (see next slide). Since dividend policy is one of the factors that drives an investor’s decision to purchase a stock, most companies announce their dividend policy and telegraph any expected changes in policy to the public. Therefore, it can be seen that many companies use their dividend policy to provide information not otherwise available to investors. In the financial press. Transactions in the stock on the ex dividend date are indicated by an “x” next to the volume of transactions. In general, stock prices fall by an amount equal to the quarterly dividend on the ex dividend date. Dividend Fundamentals: Cash Dividend Payment Procedures Date of Record: The date on which investors must own shares in order to receive the dividend payment. Ex Dividend Date: Four days prior to the date of record. The day on .
