韩山师范学院财务管理课件第十八章 Dividend Policy and Retained Earnings.ppt

Chapter 18 Dividend Policy and Retained Earnings Chapter 18 - Outline LT 18-1 Dividends vs. Retained Earnings Life Cycle Growth and Dividends Other Factors Influencing Dividend Policy Cash and Stock Dividends Stock Splits Reverse Stock Splits Repurchase of Stock Dividends vs. Retained Earnings LT 18-2 A company has to make a choice or decision regarding what to do with its earnings: Either pay them out to shareholders as dividends OR Retain them for reinvestment in the business (retained earnings) There is disagreement as to whether investors prefer dividends or retained earnings Life Cycle Growth andDividend Policy LT 18-3 Dividend policy is reflected in 4 stages: Stage I - Development no cash dividends Stage II - Growth stock dividends, low cash dividends Stage III - Expansion stock dividends, low to moderate cash dividends, stock splits Stage IV - Maturity moderate to high cash dividends Other Factors Influencing Dividend Policy LT 18-4 Legal Rules Cash Position of the Firm Access to Capital Markets Desire for Control Tax Position of Shareholders Cash and Stock Dividends LT 18-5 Cash dividends are usually paid quarterly Dividend Yield (%): –annual dividend per share / current stock price A stock dividend is a distribution of additional shares of stock There is no benefit from a stock dividend unless total cash dividends increase Stock Splits LT 18-6 Similar to a stock dividend, by increasing the total shares of stock outstanding Market value of stock is unchanged initially –ex, a 2-for-1 split will double the number of shares outstanding (with each share worth half as much as before) Primary purpose of a stock split is to lower the price into a more popular trading range Stock splits are used if the stock price gets too high Reverse Stock Splits LT 18-7 A firm exchanges fewer shares for the existing shares Purpose of a reverse stock split is to increase the stock price For example, a 1-for-4 reverse sto