Lecture Notes
2/10/2010
WHAT IS A DIVIDEND?
FINS 1613 Week 11 Lecture Notes Dividend Policy: Theory and Evidence
Definition: A payment made by a firm out of its current or accumulated retained earnings to its owners. Broad types: 1. Cash 2. Stock
Chapter 14 Dividends and Dividend Policy
1
4
Key Concepts and Skills
Cash Dividend Types
Understand dividend types and how they are paid Understand the issues surrounding dividend policy decisions Understand the difference between cash and share dividends Understand why share repurchases are an alternative to dividends
Regular cash dividend – cash payments made directly to shareholders, usually each quarter Extra cash dividend – indication that the “extra” “ t ” amount may not be repeated in the t tb t d i th future Special cash dividend – similar to extra dividend, but definitely won’t be repeated Liquidating dividend – some or all of the business has been sold
2 5
Chapter 14 Outline
Cash Dividends and Dividend Payment Does Dividend Policy Matter? Establishing a Dividend Policy Share Repurchase: An Alternati e to Cash Rep rchase Alternative Dividends Bonus Issues and Share Splits
HOW ARE CASH DIVIDENDS PAID? The distribution process is governed by law.
Declaration date: Directors announce dividend payment Cum-dividend: Share trades with dividend entitlement Ex-dividend date: Date from which share trades without dividend entitlement Record date: Date by which shareholder must be on firm’s records to receive dividend payment Payment Date: Date on which dividend is paid to shareholders on record.
3 6
1
2/10/2010
Figure 14.2 The Ex-Day Price Drop
SHOULD THE FIRM PAY DIVIDENDS?
Decision rule: Firm should pay dividends if and only if it increases firm value Issue: Do dividends increase firm value
7
10
WHAT IS DIVIDEND POLICY?
Does Dividend Policy Matter?
Definition: The firm’s decision regarding how much of its earnings it will pay out to its shareholders in the form
WHAT IS A DIVIDEND?
FINS 1613 Week 11 Lecture Notes Dividend Policy: Theory and Evidence
Definition: A payment made by a firm out of its current or accumulated retained earnings to its owners. Broad types: 1. Cash 2. Stock
Chapter 14 Dividends and Dividend Policy
1
4
Key Concepts and Skills
Cash Dividend Types
Understand dividend types and how they are paid Understand the issues surrounding dividend policy decisions Understand the difference between cash and share dividends Understand why share repurchases are an alternative to dividends
Regular cash dividend – cash payments made directly to shareholders, usually each quarter Extra cash dividend – indication that the “extra” “ t ” amount may not be repeated in the t tb t d i th future Special cash dividend – similar to extra dividend, but definitely won’t be repeated Liquidating dividend – some or all of the business has been sold
2 5
Chapter 14 Outline
Cash Dividends and Dividend Payment Does Dividend Policy Matter? Establishing a Dividend Policy Share Repurchase: An Alternati e to Cash Rep rchase Alternative Dividends Bonus Issues and Share Splits
HOW ARE CASH DIVIDENDS PAID? The distribution process is governed by law.
Declaration date: Directors announce dividend payment Cum-dividend: Share trades with dividend entitlement Ex-dividend date: Date from which share trades without dividend entitlement Record date: Date by which shareholder must be on firm’s records to receive dividend payment Payment Date: Date on which dividend is paid to shareholders on record.
3 6
1
2/10/2010
Figure 14.2 The Ex-Day Price Drop
SHOULD THE FIRM PAY DIVIDENDS?
Decision rule: Firm should pay dividends if and only if it increases firm value Issue: Do dividends increase firm value
7
10
WHAT IS DIVIDEND POLICY?
Does Dividend Policy Matter?
Definition: The firm’s decision regarding how much of its earnings it will pay out to its shareholders in the form