财务管理课件chap014

1、mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwindividends and dividend policychapter 14mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.1key concepts and skillsnunderstand dividend types and how they are paidnunderstand th

2、e issues surrounding dividend policy decisionsnunderstand the difference between cash and stock dividendsnunderstand why share repurchases are an alternative to dividendsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.2chapter outlinencash dividends and divid

3、end paymentndoes dividend policy matter?nestablishing a dividend policynstock repurchase: an alternative to cash dividendsnstock dividends and stock splitsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.3cash dividendsnregular cash dividend cash payments made

4、 directly to stockholders, usually each quarternextra cash dividend indication that the “extra” amount may not be repeated in the futurenspecial cash dividend similar to extra dividend, but definitely wont be repeatednliquidating dividend some or all of the business has been soldmcgraw-hill 2004 the

5、 mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.4dividend paymentndeclaration date board declares the dividend and it becomes a liability of the firmnex-dividend datenoccurs two business days before date of recordnif you buy stock on or after this date, you will not receive the

6、dividendnstock price generally drops by about the amount of the dividendndate of record holders of record are determined and they will receive the dividend paymentndate of payment checks are mailedmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.5figure 14.2 t

7、he ex-day price dropmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.6does dividend policy matter?ndividends matter the value of the stock is based on the present value of expected future dividendsndividend policy may not matterndividend policy is the decision

8、 to pay dividends versus retaining funds to reinvest in the firmnin theory, if the firm reinvests capital now, it will grow and can pay higher dividends in the futuremcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.7illustration of irrelevancenconsider a firm

9、that can either pay out dividends of $10,000 per year for each of the next two years or can pay $9000 this year, reinvest the other $1000 into the firm and then pay $11,120 next year. investors require a 12% return.nmarket value with constant dividend = $16,900.51nmarket value with reinvestment = $1

10、6,900.51nif the company will earn the required return, then it doesnt matter when it pays the dividendsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.8low payout pleasenwhy might a low payout be desirable?nindividuals in upper income tax brackets might prefe

11、r lower dividend payouts, with the immediate tax consequences, in favor of higher capital gainsnflotation costs low payouts can decrease the amount of capital that needs to be raised, thereby lowering flotation costsndividend restrictions debt contracts might limit the percentage of income that can

12、be paid out as dividendsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.9high payout pleasenwhy might a high payout be desirable?ndesire for current incomenindividuals in low tax bracketsngroups that are prohibited from spending principal (trusts and endowmen

13、ts)nuncertainty resolution no guarantee that the higher future dividends will materializentaxesndividend exclusion for corporationsntax-exempt investors dont have to worry about differential treatment between dividends and capital gainsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights rese

14、rved.mcgraw-hill/irwin14.10clientele effectnsome investors prefer low dividend payouts and will buy stock in those companies that offer low dividend payoutsnsome investors prefer high dividend payouts and will buy stock in those companies that offer high dividend payoutsmcgraw-hill 2004 the mcgraw-h

15、ill companies, inc. all rights reserved.mcgraw-hill/irwin14.11implications of the clientele effectnwhat do you think will happen if a firm changes its policy from a high payout to a low payout?nwhat do you think will happen if a firm changes its policy from a low payout to a high payout?nif this is

16、the case, does dividend policy matter?mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.12information content of dividendsnstock prices generally rise with unexpected increases in dividends and fall with unexpected decreases in dividendsndoes this mean that the

17、 average investor prefers a high dividend payout ratio?nno changes in the dividend send a signal about managements view concerning future prospectsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.13dividend policy in practicenresidual dividend policynconstant

18、growth dividend policy dividends increased at a constant rate each yearnconstant payout ratio pay a constant percent of earnings each yearncompromise dividend policymcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.14residual dividend policyndetermine capital b

19、udgetndetermine target capital structurenfinance investments with a combination of debt and equity in line with the target capital structurenremember that retained earnings are equitynif additional equity is needed, issue new sharesnif there are excess earnings, then pay the remainder out in dividen

20、dsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.15example residual dividend policyngivennneed $5 million for new investmentsntarget capital structure: d/e = 2/3nnet income = $4 millionnfinding dividendn40% financed with debt (2 million)n60% financed with eq

21、uity (3 million)nni equity financing = $1 million, paid out as dividendsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.16compromise dividend policyngoals, ranked in order of importancenavoid cutting back on positive npv projects to pay a dividendnavoid divid

22、end cutsnavoid the need to sell equitynmaintain a target debt/equity rationmaintain a target dividend payout rationcompanies want to accept positive npv projects, while avoiding negative signalsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.17stock repurchas

23、encompany buys back its own shares of stockntender offer company states a purchase price and a desired number of sharesnopen market buys stock in the open marketnsimilar to a cash dividend in that it returns cash from the firm to the stockholdersnthis is another argument for dividend policy irreleva

24、nce in the absence of taxes or other imperfectionsmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.18real-world considerationsnstock repurchase allows investors to decide if they want the current cash flow and associated tax consequencesninvestors face capital

25、 gains taxes instead of ordinary income taxes (lower rate)nin our current tax structure, repurchases may be more desirable due to the options provided stockholdersnthe irs recognizes this and will not allow a stock repurchase for the sole purpose of allowing investors to avoid taxesmcgraw-hill 2004

26、the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.19information content of stock repurchasesnstock repurchases sends a positive signal that management believes that the current price is lowntender offers send a more positive signal than open market repurchases because the compa

27、ny is stating a specific pricenthe stock price often increases when repurchases are announcedmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.20stock repurchase announcement“america west airlines announced that its board of directors has authorized the purchas

28、e of up to 2.5 million shares of its class b common stock on the open market as circumstances warrant over the next two years “following the approval of the stock repurchase program by the companys board of directors earlier today. w. a. franke, chairman and chief officer said the stock repurchase p

29、rogram reflects our belief that america west stock may be an attractive investment opportunity for the company, and it underscores our commitment to enhancing long-term shareholder value.“the shares will be repurchased with cash on hand, but only if and to the extent the company holds unrestricted c

30、ash in excess of $200 million to ensure that an adequate level of cash and cash equivalents is maintained.”mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin14.21stock dividendsnpay additional shares of stock instead of cashnincreases the number of outstanding sharesnsmall stock dividendnless than 20 to 25%nif you own 100 shares and the company declared a 10% stock dividend, you would