Lesson 7 - Dividends, Stock Repurchases, Payout Policy (Reading)

Question 1

payout policy

Answer 1

the policy concerning the distrbution of value from a firm to its stockholders

Question 2

dividend

Answer 2

something of value distributed to a firm’s stockholders on a pro-rata basis - that is, in proportion to the percentage of the firm’s shares that they own

Question 3

regular cash dividend

Answer 3

a cash dividend that is paid on a regular basis, typically quarterly

Question 4

extra dividend

Answer 4

a dividend that is generally paid at the same time as a regular cash dividend to distribute additional value (some companies use them to ensure that a minimum portion of earnings is distributed to stockholders each year)

Question 5

special dividend

Answer 5

a one-time payment to stockholders that is normally used to distribute a large amount of value

Question 6

liquidating dividend

Answer 6

the final dividend that is paid to stockholders when a firm is liquidated

Question 7

declaration date

Answer 7

the date on which a dividend is publically announced

Question 8

ex-dividend date

Answer 8

the first day on which a stock trades without the rights to a dividend

Question 9

record date

Answer 9

the date by which an investor must be a stockholder of record in order to receive a dividend

Question 10

payable date

Answer 10

the date on which a company pays a dividend

Question 11

stock repurchases

Answer 11

the purchase of stock by a company from its stockholders; an alternative way for the company to distribute value to its stockholders

Question 12

open-market repurchase

Answer 12

the repurchase of shares by a company in the open market; convenient for ongoing basis so profits can be distribute instead of paying dividends, however gov’t limits amt repurchased in a day so it could take months for a company to distribute large amt of cash using open market

Question 13

tender offer

Answer 13

an open offer by a company to purchase shares; two types: fixed-price and Dutch auction

Question 14

fixed-price tender offer

Answer 14

mgmt announces price of shares and max # of shares to be repurchased, interested stockholders then lets mgmt know how many shares they’re willing to sell. if the # of shares tendered exceeds announced max, then the max # are repurchased and each stockholder who tendered shares participate in the repurchase in proportion to the fraction of the total shares he/she tendered

Question 15

Dutch auction tender offer

Answer 15

mgmt announces # of shares and asks stockholders how many they would like to sell at a series of prices (alt prices are set higher than market price) –> stockholders then tell company how many shares they will sell at the offer price, once offers have been collected mgmt determines prices that would allow them to repurchase the number of shares that they want. all of the tendering stockholders who indicate a willingness to sell at or below this price will then receive this price for their assets.

Question 16

targeted stock repurchases

Answer 16

a stock repurchase that targets a specific stockholder

Question 17

dividend reinvestment program (DRIP)

Answer 17

a program in which a company sells new shares, commission free, to dividend recipients who elect to automatically reinvest their dividends in the company’s stock

Question 18

stock dividend

Answer 18

a distribution of new shares to existing stockholders in proportion to the percentage of shares that they own (prorata); the value of the assets in a company does not change with a stock dividend; typically regularly scheduled events

Question 19

stock split

Answer 19

prorated distribution of new shares to existing stockholders that’s not associated w/ any change in the assets held by the firm; stock splits involve larger increases in the number of shares than stock dividends; tend to occur infrequently