公司理财英文版课件Chap017

1、Chapter 17Dividends and Dividend PolicyMcGraw-Hill/IrwinCopyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.1Key Concepts and SkillsUnderstand dividend types and how they are paidUnderstand the issues surrounding dividend policy decisionsUnderstand the difference between cash and s

2、tock dividendsUnderstand why share repurchases are an alternative to dividends17-22Chapter OutlineCash Dividends and Dividend PaymentDoes Dividend Policy Matter?Real-World Factors Favoring a Low Dividend PayoutReal-World Factors Favoring a High Dividend PayoutA Resolution of Real-World FactorsStock

3、Repurchase: An Alternative to Cash DividendsWhat We Know and Do Not Know about Dividends and Payout PoliciesStock Dividends and Stock Splits17-33Cash DividendsRegular cash dividend cash payments made directly to stockholders, usually each quarterExtra cash dividend indication that the “extra” amount

4、 may not be repeated in the futureSpecial cash dividend similar to extra dividend, but definitely will not be repeatedLiquidating dividend some or all of the business has been sold17-44Dividend PaymentDeclaration Date Board declares the dividend, and it becomes a liability of the firmEx-dividend Dat

5、eOccurs two business days before date of recordIf you buy stock on or after this date, you will not receive the dividendStock price generally drops by about the amount of the dividendDate of Record Holders of record are determined, and they will receive the dividend paymentDate of Payment checks are

6、 mailed17-55Figure 17.217-66Does Dividend Policy Matter?Dividends matter the value of the stock is based on the present value of expected future dividendsDividend policy may not matterDividend policy is the decision to pay dividends versus retaining funds to reinvest in the firmIn theory, if the fir

7、m reinvests capital now, it will grow and can pay higher dividends in the future17-77Illustration of IrrelevanceConsider a firm that can either pay out dividends of $10,000 per year for each of the next two years or can pay $9,000 this year, reinvest the other $1,000 into the firm and then pay $11,1

8、20 next year. Investors require a 12% return.Market Value with constant dividend = $16,900.51Market Value with reinvestment = $16,900.51If the company will earn the required return, then it doesnt matter when it pays the dividends17-88Low Payout PleaseWhy might a low payout be desirable?Individuals

9、in upper income tax brackets might prefer lower dividend payouts, given the immediate tax liability, in favor of higher capital gains with the deferred tax liabilityFlotation costs low payouts can decrease the amount of capital that needs to be raised, thereby lowering flotation costsDividend restri

10、ctions debt contracts might limit the percentage of income that can be paid out as dividends17-99High Payout PleaseWhy might a high payout be desirable?Desire for current incomeIndividuals that need current income, i.e., retireesGroups that are prohibited from spending principal (trusts and endowmen

11、ts)Uncertainty resolution no guarantee that the higher future dividends will materializeTaxesDividend exclusion for corporationsTax-exempt investors dont have to worry about differential treatment between dividends and capital gains17-1010Dividends and SignalsAsymmetric information managers have mor

12、e information about the health of the company than investorsChanges in dividends convey informationDividend increasesManagement believes it can be sustainedExpectation of higher future dividends, increasing present valueSignal of a healthy, growing firmDividend decreasesManagement believes it can no

13、 longer sustain the current level of dividendsExpectation of lower dividends indefinitely; decreasing present valueSignal of a firm that is having financial difficulties17-1111Clientele EffectSome investors prefer low dividend payouts and will buy stock in those companies that offer low dividend pay

14、outsSome investors prefer high dividend payouts and will buy stock in those companies that offer high dividend payouts17-1212Implications of the Clientele EffectWhat do you think will happen if a firm changes its policy from a high payout to a low payout?What do you think will happen if a firm chang

15、es its policy from a low payout to a high payout?If this is the case, does dividend policy matter?17-1313Stock RepurchaseCompany buys back its own shares of stockTender offer company states a purchase price and a desired number of sharesOpen market buys stock in the open marketSimilar to a cash divi

16、dend in that it returns cash from the firm to the stockholdersThis is another argument for dividend policy irrelevance in the absence of taxes or other imperfections17-1414Real-World ConsiderationsStock repurchase allows investors to decide if they want the current cash flow and associated tax conse

17、quencesGiven our tax structure, repurchases may be more desirable due to the options provided stockholdersThe IRS recognizes this and will not allow a stock repurchase for the sole purpose of allowing investors to avoid taxes17-1515Information Content of Stock RepurchasesStock repurchases send a pos

18、itive signal that management believes the current price is lowTender offers send a more positive signal than open market repurchases because the company is stating a specific priceThe stock price often increases when repurchases are announced17-1616Example: Repurchase Announcement “America West Airl

19、ines announced that its Board of Directors has authorized the purchase of up to 2.5 million shares of its Class B common stock on the open market as circumstances warrant over the next two years “Following the approval of the stock repurchase program by the companys Board of Directors earlier today.

20、 W. A. Franke, chairman and chief officer said The stock repurchase program reflects our belief that America West stock may be an attractive investment opportunity for the Company, and it underscores our commitment to enhancing long-term shareholder value. “The shares will be repurchased with cash o

21、n hand, but only if and to the extent the Company holds unrestricted cash in excess of $200 million to ensure that an adequate level of cash and cash equivalents is maintained.”17-1717What We Know and Do Not KnowCorporations “smooth” dividendsDividends provide information to the marketFirms should f

22、ollow a sensible dividend policy:Dont forgo positive NPV projects just to pay a dividendAvoid issuing stock to pay dividendsConsider share repurchase when there are few better uses for the cash17-1818Putting It All TogetherAggregate payouts are massive and have increased over timeDividends are conce

23、ntrated among a small number of large, mature firmsManagers are reluctant to cut dividendsManagers smooth dividendsStock prices react to unanticipated changes in dividends17-1919Managements View of Dividend PolicyAgree or Strongly Agree93.8% Try to avoid reducing dividends per share89.6% Try to main

24、tain a smooth dividend from year to year41.7% Pay dividends to attract investors subject to “prudent man” restrictionsImportant or Very Important84.1% Maintaining consistency with historic dividend policy71.9% Stability of future earnings9.3% Flotation costs to issue new equity17-2020Stock Dividends

25、Pay additional shares of stock instead of cashIncreases the number of outstanding sharesSmall stock dividendLess than 20 to 25%If you own 100 shares and the company declared a 10% stock dividend, you would receive an additional 10 sharesLarge stock dividend more than 20 to 25%17-2121Stock SplitsStock splits essentially the same as a stock dividend except expressed as a ratioFor example, a 2 for 1 stock split is the