Dividends and Share Repurchases: Assignment

Dividendsand Share
repurchases:Basics

1.Introduction
•A dividend isa prorata distribution to shareholders that isdeclared by the company’sboard of directors and may ormay notrequireapproval by shareholders.
•A repurchase of stockis a distribution in the form of thecompany buying backits stockfrom shareholders.
•The board of directors determines the company’spayoutpolicy.
•Cash dividends and share repurchases are both methods ofdistributing cash to shareholders.•The effects on financial ratios and on shareholders’ investmentreturns are differentbetween these two methods.
•These distributions mayprovide information about the company’sfuture prospects.
•Issuing companies cannot deduct distributions to shareholdersfortax purposes.
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2.Dividends: Forms
Cash Distributions
Regular Cash Dividend
Extra Dividend
LiquidatingDividend
Noncash Distributions
StockDividend
StockSplit
Reverse StockSplit
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Regular cash dividends
•A regular cash dividend is a cash dividend paid at
regular intervals of time
•The regularintervals may be anyfrequency, butthe
most common are quarterly, semiannually, or annually.
•Tendency of companiesis to maintain or increase
dividends
•Often viewedas signals of management’s assessment of
the company’sfuture (that is, whether the company can
maintain the dividend in the future).
•Companies prefer notto cut or reduce the dividend.
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