Important Ch 7&10 L6!!! Flashcards
Common stock
if a company has common stock it means that: a share of ownership in the corp gives the owner rights to any common dividends as well as a right to vote in the election of directors, mergers etc
the rights of common stockholders are:
- Shareholder voting
- Sharehokders right to attend annual meetings
Preferred stock
some companies issue additional preferred stocks that have preference over common shares in the distribution of dividends or cash during liquidation
preferred stockholders DONT TYPICALLY get to vote for the board etc
Two types:
Cumulative: any unpaid dividends are paid forward (accumulating) and until the company can pay the total owed amount to the preferred cumulative stockholders no one else can receive dividend
Non cumulative: the missed dividends are ignored and the company only has to pay the yearly dividend
short sale
borrowing shares from someone and selling them on the current market, however at some point you need to buy the shares back and return them and in the meantime you have to pay dividend to the person you borrowed from
3 ways a firm can increase the amount of its future div per share
- increase its earnings (net income)
- increase its dividend payout rate
- decrease its shares outstanding
Dividend Discount model
A model used to determine the expected cash flows that an investor and ill receive from owning it.
Dividend yield
the percentage return an investor expected to eran from the dividend paid by the stock
Capital gain
the gain an investor will earn on the stock, for example selling the stock at a profit would be capital gain
total return of the stock
The sum of dividend yield and capital gain rate
Constant dividend growth model
the dividend -discount is not always applicable since we need the dividends for the future which cannot be ascertained. Therefore we can give an approximation of the constant dividend growth and use that as a substitute
