Payout Policy Chap 17 Flashcards
Payout policies
The way a firm chooses between the alternative ways to pay cash out to equity holders
Dividend
A public companies board of directors determines the amount of the firms dividend.
The board set the amount per share that will be paid and decides when the payment will occur for shareholders.
A dividend is an asset.
Declaration date
The date on which a public companies board of directors authorises the payment of a dividend
Record date
When the firm pays a dividend, only shareholders of record on this day receive the dividend
Ex-dividend date
A date two days prior to a dividends report date, on or after which anyone buying stock will not be eligible for the dividend
Payable date/distribution date
A date generally, within a month after the record date in which a firm mails dividend checks to its registered stockholders
Special dividend
A one-time dividend payment a firm makes that is usually much larger than a regular dividend
Stock split/ stock dividend
When a company issues a dividend in shares of stock rather than cash it to the shareholders
Share repurchase
An alternative way to pay cash to investors is through a share, repurchase or buy back
Open market repurchase
When the firm Repurchase shares by buying its shares in the open market. This is the most common way that shares repurchase shares.
Tender offer
A public announcement of an offer to all existing security holders to buy back a specified amount of outstanding securities at a prespecified price over a prespecified period of time. This happens generally within 20 days.
Dutch auction
A share repurchase method in which the firm lists different prices at which the shares, and the shareholder in turn indicate how many shares they are willing to sell at each price. The firm then pays the lowest price at which it can buy back its desired number of share
Targeted repurchase
When a firm purchases shares directly from a specific shareholder
Alternative policy (3)
- Pay dividends with excess cash -> cum dividend
- Share of purchases (no dividend) -> homemade leverage
- High dividend (equity issue)
MM dividend irrelevance
In perfect capital markets, holding fixed the investment policy of a firm, the firmschoice of dividend policy is irrelevant and does not affect the initial share price.
