Chapter 18 Dividend Policy 18-1
18-1 Chapter 18 Dividend Policy
Dividend Policy Passive versus Active dividend Policies Factors Influencing Dividend Policy Dividend Stability Stock Dividends and stock Splits Stock Repurchase Administrative Considerations 182
18-2 Dividend Policy Passive Versus Active Dividend Policies Factors Influencing Dividend Policy Dividend Stability Stock Dividends and Stock Splits Stock Repurchase Administrative Considerations
Dividends as a Passive residual Can the payment of cash dividends affect shareholder wealth? If so, what dividend-payout ratio will maximize shareholder wealth? The firm uses earnings plus the additional financing that the increased equity can support to finance any expected positive-NPV projects. Any unused earnings are paid out in the form of dividends. This describes a passive dividend policy. 183
18-3 Dividends as a Passive Residual The firm uses earnings plus the additional financing that the increased equity can support to finance any expected positive-NPV projects. Any unused earnings are paid out in the form of dividends. This describes a passive dividend policy. Can the payment of cash dividends affect shareholder wealth? If so, what dividend-payout ratio will maximize shareholder wealth?
Irrelevance of dividends A. Current dividends versus retention of earnings M&M contend that the effect of dividend payments on shareholder wealth is exactly offset by other means of financing. The dividend plus the new stock price after dilution exactly equals the stock price prior to the dividend distribution 184
18-4 Irrelevance of Dividends M&M contend that the effect of dividend payments on shareholder wealth is exactly offset by other means of financing. The dividend plus the new stock price after dilution exactly equals the stock price prior to the dividend distribution. A. Current dividends versus retention of earnings
Irrelevance of dividends B. Conservation of value M&M and the total-value principle ensures that the sum of market value plus current dividends of two firms identical in all respects other than dividend-payout ratios will be the same Investors can create any dividend policy they desire by selling shares when thethe dividend payout is too low or buying shares when the dividend payout is excessive 185
18-5 Irrelevance of Dividends M&M and the total-value principle ensures that the sum of market value plus current dividends of two firms identical in all respects other than dividend-payout ratios will be the same. Investors can create any dividend policy they desire by selling shares when the the dividend payout is too low or buying shares when the dividend payout is excessive. B. Conservation of value