Dividends

4 Key excerpts on "Dividends"

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  eBook - PDF

  Corporate Finance

  Theory and Practice in Emerging Economies

  • Sunil Mahajan(Author)
  • 2020(Publication Date)
  • Cambridge University Press

    (Publisher)

  Retain and invest in long-term projects 2. Pay off liabilities 3. Pay cash Dividends to shareholders 4. Repurchase its own equity (stock buyback) CHAPTER 8 Dividend Payout | 215 Cash Dividends and the repurchase of equity transfer funds from the company to the shareholders and are the primary means by which shareholders earn from their investments in the company. Earlier in the book, we have discussed the difference between debt and equity. Debt providers are paid an annual coupon rate of interest, usually fixed, which must be paid, irrespective of the profits made or losses incurred by the company. The interest is paid from the operating profits and the coupon interest reduces the taxable profits of the company and thereby the taxes payable. Thus, debt is safer, has fixed returns and the interest paid on debt is tax-deductible. Equity shareholders receive Dividends from the company. Dividends are not assured, depending, as they do, on the profits made and the cash flow requirements of the company. The board of directors decides the dividend payout on a quarterly/annual basis. Dividend payment is uncertain, being paid after the debt providers and the government have got their dues by way of coupon interest and corporate tax. Dividends are paid out of the net profit (or retained earnings) and carry no tax benefits for the company. Dividends Dividends may be paid annually, half-yearly or quarterly. Until a few years back, the payment of dividend was a logistical nightmare involving the calculation of dividend amount for each shareholder, the preparation of cheques, putting each in an envelope with an appropriate address, dispatching the same and, finally, the shareholder depositing the cheque in his account at the bank. The subsequent reconciliation was even more onerous. The entire cost was prohibitive, and companies preferred to pay annual rather than quarterly Dividends.

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  eBook - ePub

  Get Rich with Dividends

  A Proven System for Earning Double-Digit Returns

  • Marc Lichtenfeld(Author)
  • 2023(Publication Date)
  • Wiley

    (Publisher)

  A strong dividend policy, however, is a throwback to the way our grandparents invested and ran businesses. Managers of dividend‐paying companies are not taking the easy way out. Instead, they commit themselves and their companies to a level of performance that their shareholders can expect year after year.

  Even when times are tough, by raising Dividends, management is telling shareholders they can expect an increased return every year they own the stock. A share buyback keeps management in control of the money. A dividend program relieves some of that control, which investors should view as a sign of capable and confident management.

  Don't overlook the fact that today's management teams often own millions of shares of their companies’ stocks. And while they would love for the stock price to go infinitely higher so that they can sell their shares for millions of dollars more, investors in it for the long haul also benefit from the Dividends.

  A CEO with 1 million shares of a $10 stock that pays a 4% yield receives $400,000 per year in income, which, right now, is taxed at a lower rate than their ordinary income rate, which is significantly higher. Note that tax rates on Dividends may increase at a later date. I discuss taxes in Chapter 12 .

  For members of management teams who aren't thinking about cashing out their stock anytime soon, a healthy dividend is in their best interest as well. Critics of Dividends often say companies pay Dividends because they can't come up with a better use of the money.

  I disagree. There is nothing wrong with investors receiving returns on their investment every year as a reward for putting funds into a business and riding it out for the long term. Additionally, a rising dividend also instills confidence that management expects cash flows to continue to grow and puts pressure on executives to ensure that they do. You won't see many executives just punching the clock when business is tough if they know they have to increase the amount of money they are paying out to shareholders every year.

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  eBook - PDF

  Dividend Policy

  Theory and Practice

  • George Frankfurter, Bob G. Wood, James Wansley(Authors)
  • 2003(Publication Date)
  • Academic Press

    (Publisher)

  As noted at the beginning of Chapters 2 and 3, the original payments to joint stock company shareholders in Holland and Great Britain were liquidating distributions of capital and profit that terminated the joint stock enterprise’s existence. Later payments were limited to the net profits of the undertakings that permitted a more efficient use of investment capital and gave the firms perpet-ual existence. Over the better part of the late 20th century the payments have become symbolic liquidations solely determined by managers; Dividends are paid to shareholders from a combination of profits from the current period and earn-ings retained in previous profitable periods. Although largely symbolic, the con-tinued importance of a consistent and significant dividend payment to maintain shareholder contentment remains a managerial priority. It seems that the corporation progressed from its original liquidating div-idend, to distribution of all profits (retaining some capital), to a token dividend payment, the size and frequency of which are left to the discretion of manage-ment. At the same time, alternative schemes of distribution (such as repurchase of stock, green mail, etc.) and quasi-distributions (such as stock Dividends and splits) have been devised and accepted. These subjects are discussed in later chapters of this book. Clearly,this evolution could not have occurred in a vacuum. It has been par-alleled, if not precipitated, by the systematic removal of the owners from manage-ment, i.e., the separation of control from ownership. Hence, it is not totally illogical to presume that the payment of Dividends, especially those that are undoubtedly symbolic (because of their magnitude relative to the value of the share itself ), is a ritual performed by managers to show good faith toward the owners. Adam Smith is perhaps the first to express this view.

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  eBook - PDF

  CFIN

  • Scott Besley, Eugene Brigham, Scott Besley(Authors)
  • 2021(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. dividend payments are more certain than the future cap- ital gains that might result when a firm retains earnings to invest in growth opportunities. If this logic is correct, the required return on equity, r s , should decrease as the dividend payout is increased, causing the firm’s stock price to increase. 2 Another factor that might cause investors to prefer a particular dividend policy is the tax effect of dividend receipts. Investors must pay taxes at the time Dividends and capital gains are received. Thus, depending on his or her tax situation, an investor might prefer either a payout of current earnings as Dividends, which would be taxed in the current period, or the capital gains associated with growth in stock value, which would be taxed when the stock is sold, perhaps many years in the future. Investors who prefer to delay the impact of taxes would be willing to pay more for companies with low dividend payouts than for otherwise similar high dividend-payout compa- nies, and vice versa. Those who believe the firm’s dividend policy is relevant are proponents of the dividend relevance theory, which asserts that dividend policy can affect the value of a firm through investors’ preferences. Although academic researchers have studied the div- idend policy issue extensively, they cannot tell corporate decision makers exactly how dividend policy affects stock prices and capital costs.

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