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dividend policy
CHAPTER

13

DIVIDEND
POLICY
L E A R N I N G

LG1
LG2

LG3

Understand cash dividend payment procedures 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 formulating a dividend policy.

G O A L S

LG4

Review and evaluate the three basic types of dividend policies.

LG5

Evaluate stock dividends from accounting, shareholder, and company points of view.

LG6

Explain stock splits and stock repurchases and the firm’s motivation for undertaking each of them. Across the Disciplines WHY THIS CHAPTER MATTERS TO YO U
Accounting: You need to understand the types of dividends and payment procedures for them because you will need to record and report the declaration and payment of dividends; you also will provide the financial data that management must have to make dividend decisions.
Information systems: You need to understand types of dividends, payment procedures, and the financial data that the firm must have to make and implement dividend decisions.
Management: In order to make appropriate dividend decisions for the firm, you need to understand types of dividends, the fac-

558

tors that affect dividend policy, types of dividend policies, and arguments about the relevance of dividends.
Marketing: You need to understand factors affecting dividend policy because you may want to argue that the firm would be better off keeping funds for the development of new products, rather than paying them out as dividends.
Operations: You need to understand factors affecting dividend policy because you may find that the firm’s dividend policy imposes limitations on expansion.

GENERAL
ELECTRIC
BRIGHTENING
SHAREHOLDER
RETURNS eneral Electric Co., the world’s largest firm in terms of market capitalization, has paid dividends to its shareholders continually since 1899. In

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