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24 Cards in this Set
- Front
- Back
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Normal dividends, usually paid on a quarterly basis (if paid)
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Regular cash dividend
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Paid over and above the regular dividend, may or may not be repeated
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Extra cash dividend
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One-time dividend paid over and above the regular dividend, won’t be repeated
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Special dividend
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The dividend is declared by the Board of Directors and becomes a liability of the firm
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Declaration date
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Occurs 2 days prior to the date of record, if you purchase the stock on or after the _____ date, you will not receive the dividend
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Ex-dividend date
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Firm prepares the list of stockholders who will receive dividends
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Date of record
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What is the date of payment?
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Day checks are mailed
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The _____ drops by the amount of the dividend (all else equal) on the ex-dividend date.
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Stock Price
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The _____ of the stock is the PV of expected future dividends, if the present dividend will no longer be received, then the price will drop by that amount.
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Value
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Selling shares in the appropriate proportion to create an equivalent cash flow to receiving the dividend stream you want. If you receive dividends that you don’t want, you can purchase additional shares
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Homemade dividends
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The _____ says that dividend policy is irrelevant because investors that prefer high payouts will invest in firms that have high payouts, and investors that prefer low payouts will invest in firms with low payouts.
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Clientele Effect
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True or False: Dividends are irrelevant
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False
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True or False: Dividend policy is irrelevant
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True – absent market imperfections
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Dividend policy is _____ if there is some market imperfection that affects investors’ desire for dividends now versus later.
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Relevant
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Investors that are in high marginal tax brackets might prefer _____ dividend payouts.
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Lower
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If a firm has a high dividend payout, then it will be using its cash to pay dividends instead of investing in positive NPV projects.
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Flotation Costs
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Bond indentures often contain a provision that limits the level of dividend payments.
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Dividend Restriction
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Paying dividends now rather than later resolves uncertainty.
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Uncertainty Resolution
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Changes in dividends may be important signals if the market anticipates that the change will be maintained through time. If the market believes that the change is just a rearrangement of dividends through time, then the impact will be small. The reaction to the information contained in dividend changes is called the _____.
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Information content effect
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A Compromise Dividend Policy
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In practice, managers tend to have the following goals in order of importance:
-avoid cutting back on positive NPV projects to pay a dividend (excess cash has value) -avoid dividend cuts -avoid the need to sell equity -maintain a target debt-to-equity ratio -maintain a target dividend payout ratio |
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Survey Evidence on Dividends
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-Almost 94% of the managers that responded to the survey indicated that they try to avoid reducing the dividends per share
-About 84% of the managers indicate that they try to maintain consistency with historic dividends -Less than 10% of managers worry about flotation costs |
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Cash Dividends versus Repurchase
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A firm may choose to buy back outstanding shares instead of paying a cash dividend (or instead of increasing a regular dividend). If we assume no market imperfections, then stockholder wealth is unaffected by the choice between share repurchases and cash dividends.
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Dividend paid in shares of stock rather than in cash. Commonly expressed as a percentage, e.g., a 25% stock dividend means you will receive 1 share for every 4 that you own. As with a cash dividend, the stock price declines proportionally.
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Stock dividend
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New outstanding shares issued to existing stockholders, expressed as a ratio, e.g., a 2-for-1 split means you will receive 2 shares for every one that you own. Again, the price drops (increases) proportionally.
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Stock split (reverse split)
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