Reading #39 - Dividend & Repurchase Basics Flashcards
define regular dividends
“occur when company pays out portion of profits on consistent schedule”
define special dividends
“used when favorable circumstances allow firm to make one-time cash payment to shareholders”
define liquidating dividends
occur when company goes out of business and distributes the proceeds to shareholders
define reverse stock split
“fewer shares outstanding but higher stock price”
paying a cash dividend increases or decreases liquidity ratios?
decreases because it is using cash
paying a cash dividend will increase or decrease its debt-to-assets ratio?
increase because it has less assets (i.e. cash)
paying stock dividends has what affect on liquidity ratios, leverage ratios, etc?
none - because they do not change value of company’s assets or shareholder’s equity
Describe dividend payment chronology
DEHP - declaration, ex-dividend date, holder-of-record date, payment date
define share repurchase
“transaction which company buys back shares of its own common stock”
methods of share repurchases
buy in open market, buy a fixed number, repurchase by direct negotiation
define buying in an open market
will receive at market price. needs authorization from board for # of shares. good because gives flexibility in timing
define buying a fixed # of shares at fixed price
TENDER OFFER - usually at premium to current mkt price.
define repurchase by direct negotiation
negotiate directly with large shareholder for a block of shares, usually at a premium to the market. Purpose is to buy so block of shares does not bring down mkt price
how does share repurchase affect BVPS (book value per share)
“BVPS will decrease if repurchase price is greater than original BVPS” and vice versa if repurchase price is less than BVPS original
