Module 41.1: Dividends, Splits, and Repurchases

Question 1

What are five things an investor should consider if the market value is different than the intrinsic value?

Answer 1

1) the larger the percentage difference between market prices and estimated values, the more likely you will take the position.
2) the more confident an investor is in the valuation model, the more likely an investor will be to act.
3) confidence in valuation model inputs.
4) confidence why the market value does not match estimated value due to few analysts reviewing the stock.
5) investor must believe the market price will actually move toward the intrinsic value

Question 2

What are regular dividends vs special dividends?

Answer 2

regular - occur when a company pays out a portion of profits on a consistent shcedule.

special dividends - used when favorable circumstances allow the firm to make a one-time cash payment to shareholders, in addition to any regular dividends.

Question 3

what are stock dividends?

Answer 3

paid out in additional shares of stock rather than cash.

Question 4

what are stock splits?

Answer 4

divide each existing share into multiple shares. price will react proportionately.

Question 5

What are reverse stock splits?

Answer 5

opposite of stock splits, fewer shares outstanding but there is higher stock price

Question 6

what is a share repurchase?

Answer 6

company buys outstanding shares of its own common stock. alternative to cash dividends.