Ogden- Chapter 14- Dividend policies and stock repurchases
Cash dividends are the two principal means by which a firm pays cash to shareholders. In an ideal market, the result of a dividend payment is that the firms stock price falls by the per share amount of the dividend.
Stock Repurchase- the firm uses cash to retire some outstanding shares, buying shares from any investors who choose to dell. In an ideal market, a firms stock repurchases reduce its shares outstanding as well as the firms assets (cash) but have no effect on the market price of the shares
Three things you need to determine with dividends
1) Whether the firm should pay a dividend
2) How much the dividend ...view middle of the document...
In an ideal market after this dividend is paid the market value of each share should decrease by 5%, but the total value of shares is unchanged
* Stock Split – involve a larger percentage distribution of addition stock ( ex 2 for 1)
The Dividend Payment Process
1) Board decides to declare the dividend ( declaration date)
2) In addition to declaring the type and amount, the board states the date on which the dividend will be distributed or paid ( the payable date)
3) The date on which the firm will examine corporate records to determine the owners of record for the purpose of paying the upcoming dividend ( the record date)
4) For publically traded stocks an earlier date must be established on which new purchasers of stock will no longer have the right for the upcoming dividend. ( the ex-dividend day or ex-day)
Practical effects of dividends on a firms equity. A) dividends reduce the amount of internal equity available for future investments. B) dividends increase the profitability that the firm will have to sell new equity if new investments should be funded with equity c) dividends increase the firms leverage if the firm has debt
A firm would pay a dividend that is high volatile over time for 3 reasons