Chapter 17 Flashcards
(45 cards)
What is a dividend?
A dividend is a payment made by a corporation to its shareholders, usually in the form of cash or stock.
True or False: Dividends are mandatory payments that companies must make to shareholders.
False
What are stock repurchases?
Stock repurchases occur when a company buys back its own shares from the marketplace.
Fill in the blank: Companies often repurchase shares to ____ the stock price.
increase
What is the primary purpose of a company’s payout policy?
The primary purpose of a payout policy is to determine how much cash to return to shareholders in the form of dividends or stock buybacks.
What is the difference between regular dividends and special dividends?
Regular dividends are paid consistently over time, while special dividends are one-time payments made under specific circumstances.
True or False: A higher dividend yield always indicates a better investment.
False
What is a dividend yield?
Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
What factors influence a company’s dividend policy?
Factors include the company’s profitability, cash flow, growth opportunities, and overall financial health.
Multiple choice: Which of the following is NOT a reason for stock repurchases? A) To improve financial ratios B) To provide liquidity to shareholders C) To fund expansion projects
C) To fund expansion projects
What is a stock buyback’s effect on earnings per share (EPS)?
A stock buyback typically increases EPS by reducing the number of shares outstanding.
Fill in the blank: Companies may choose to pay dividends to signal ____ about their financial health.
confidence
True or False: Stock repurchases can be a tax-efficient way to return capital to shareholders.
True
What is the ex-dividend date?
The ex-dividend date is the cutoff date to determine which shareholders are entitled to receive the next dividend payment.
What happens to a stock’s price on the ex-dividend date?
Typically, the stock price decreases by approximately the amount of the dividend.
Multiple choice: Which payout policy is likely to attract income-focused investors? A) High growth reinvestment B) Consistent dividend payments C) Aggressive stock buybacks
B) Consistent dividend payments
What is a dividend reinvestment plan (DRIP)?
A DRIP allows shareholders to reinvest their cash dividends into additional shares of the company’s stock.
Fill in the blank: A company that consistently increases its dividends is often referred to as a ____ company.
dividend growth
True or False: All companies pay dividends to their shareholders.
False
What is the payout ratio?
The payout ratio is the fraction of earnings a company pays to its shareholders in dividends.
Multiple choice: A high payout ratio may indicate: A) Strong growth potential B) Limited reinvestment opportunities C) High profitability
B) Limited reinvestment opportunities
What is a share repurchase program?
A share repurchase program is a plan by a company to buy back its own shares over a specified period.
Fill in the blank: Companies may repurchase shares to offset ____ from employee stock options.
dilution
True or False: Dividends can be paid in the form of additional shares.
True
