Analysis of Dividends and Share Repurchases Flashcards
Name the 3 different types of Cash Dividend
Regular
Extra (Special)
Liquidating
Name the 3 different types of Non Cash Dividend
Stock Dividends (additional shares instead of cash)
Stock Splits
Reserve Stock split
What are three different Dividend Reinvestment Plans?
Open market: Company purchase shares in the open market
New-Issue DRP: New shares are issues to be delivered
Hybrid: Either or.
What is a Extra Dividend?
A dividend paid by a company that does not pay a dividend or on a regular schedule, and an additional dividend to a regular cash dividend
What is liquidating dividend?
1. When a company goes out of business and the net assets are distributed to the shareholder.
2. When a compnay sells a portion of its business in cash and proceeds are distributed to shareholders.
3. Pays a dividend that exceeds its accumulated Retained Earnings
According to Tax effect theory
Tax div > Tax Capital gains
Investors prefer lower payout ratio or repurchase from a distribution
investors will pay more for lower payout ratio
According to Tax effect theory
Tax div < Tax Capital gains
Investors prefer cash dividend
According to Tax effect theory
Tax div = Tax Capital gains
Investors prefer lower payout ratio or repurchase from a distribution
investors will pay more for lower payout ratio
Dividend Irrelevance Argument assumes
- Perfect Capital market - No taxess
Bird in the hand argument assumes
Suggest that even under perfect capital markets, dividends are less risky than capital gains.
This argument does not need imperfecr capital markets to make its point
Dividends, being less risky than capital gains, should lower firms cost of equity vs another firm that oays no dividend.
Paying dividend lowers WACC and higher firm value
What is The Tax Argument
Specifically includes tax rates between dividends and capital gains.
Depends explicitaly on imperfect capital markets.
What is Dividend imputation taxation system
Corporate profits distributed as dividends are taxed just once at the shareholder tax rate.
The effective Tax rate = Tax rate on dividends
What will the new BVPS be if the Market share price is greater than current BVPS
Share price > BVPS
New BVPS will be lower
What will the new BVPS be if the Market share price is lower than current BVPS
Share price < BVPS
New BVPS will be greater
