L 7a - Dividends Policy Flashcards
(15 cards)
What are three ways a company can pay shareholders?
- Stock splits
- Cash dividends
- Stock dividends
How does a stock split affect the number of shares and the stock price?
- Number of shares increases
- Price falls
List the dates involved in the standard method of cash dividend payment:
- Declaration date
- Date of Record
- Ex dividend date
- Date of payment
What happens to the share price on the ex-dividend date in a perfect world without taxes?
Share price falls by the amount of the dividend payment
What is the main idea behind the ‘homemade dividend’ concept?
Investors can create their desired dividend policy regardless of the firm’s policy
What should firms never give up to increase or pay a dividend?
A positive NPV project
What are the three approaches to share repurchase?
- Open mkt purchase
- Tender offer
- Targeted repurchase
List four reasons why companies might choose share repurchases over dividends?
- Flexibility
- Executive compensation
- Offset to dilution
- Undervaluation
Name three real-world factors that may favour a high-dividend policy?
- Desire for current income
- Behavioural finance
- Agency costs
What does the ‘clientele effect’ suggest about dividend policy?
Different investors prefer different payout policies
Explain the core idea of the ‘catering theory of dividends’
Companies cater to investor demand for dividends
What two factors influence dividend smoothing?
- Target payout ratio
- Speed of adjustment
What is the general investor reaction when dividends are cut?
Prices tend to fall
What is the size threshold for a stock dividend to be considered a large stock dividend?
More than 20-25%
How is a stock split expressed?
As a ratio (e.g., 2 for 1)
