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16-1

DIVIDENDS AND OTHER PAYOUTS

Chapter 16

Copyright 2014 McGraw-Hill Education. All rights rsr!d. "o rproduction or distri#ution without th prior writtn consnt o$ McGraw-Hill Education.

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16-2

KEY CONCEPTS AND SKILLS

Differentiate and expain !ari"#$ di!idend t%pe$and h"& the% are paid

'ra$p and app% the i$$#e$ $#rr"#ndin( di!idend

p"i)% de)i$i"n$ C"*prehend and expain &h% $hare rep#r)ha$e$

are an aternati!e t" di!idend$

Di$tin(#i$h the differen)e +et&een )a$h and $t"),

di!idend$

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16-%

CHAPTER OUTLINE

16-1 Different T%pe$ "f Di!idend$16-. Standard /eth"d "f Ca$h Di!idend Pa%*ent

16-0 The en)h*ar, Ca$e2 An I#$trati"n "f theIrree!an)e "f Di!idend P"i)%

16-3 Rep#r)ha$e "f St"),

16-4 Per$"na Taxe$5 I$$#an)e C"$t$5 and Di!idend$

16-6 Rea "rd 7a)t"r$ 7a!"rin( a Hi(h8Di!idend P"i)%

16-9 The Cientee Effe)t2 A Re$"#ti"n "f Rea "rd7a)t"r$:

16-; hat e Kn"& and D" N"t Kn"& A+"#t Di!idendP"i)%

16-< P#ttin( It A T"(ether

16-1= St"), Di!idend$ and St"), Spit$

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16-4

16-1 DI77ERENT TYPES O7DIVIDENDS

/an% )"*panie$ pa% a regular cash dividend- P#+i) )"*panie$ "ften pa% >#arter%-

S"*eti*e$ fir*$ &i pa% an extra )a$h di!idend-

The extre*e )a$e &"#d +e a i>#idatin( di!idend- C"*panie$ &i "ften de)are stock dividends.

N" )a$h ea!e$ the fir*-

The fir* in)rea$e$ the n#*+er "f $hare$ "#t$tandin(-

S"*e )"*panie$ de)are a dividend in kind- ri(e%?$ '#* $end$ a +"x "f )he&in( (#*-

D#ndee Cre*at"ria "ffer$ $hareh"der$ di$)"#nted)re*ati"n$-

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16-&

16-. STANDARD /ETHOD O7 CASHDIVIDEND

Record Date' (at on which co)pany

dtr)ins *isting sharholdrs.

Ex-Dividend Date- (at that dtr)inswhthr a stoc+holdr is ntitld to a di!idnd

pay)nt, anyon holding stoc+ i))diatly

#$or this dat is ntitld to a di!idnd.

Cash Dividend- ay)nt o$ cash #y th $ir)

to its sharholdrs.

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16-6

PROCEDURE 7OR CASH DIVIDEND

2& ct. 1 "o!. 2 "o!. & "o!. / (c.

(claration

(at

Cu)-

di!idnd

(at

E*-

di!idnd

(at

cord

(at

ay)nt

(at

Declaration Date h 3oard o$ (irctors dclars a pay)nt

o$ di!idnds.

Cum-Dividend Date 3uyr o$ stoc+ still rci!s th di!idnd.

Ex-Dividend Date llr o$ th stoc+ rtains th di!idnd.

Record Date h corporation prpars a list o$ all indi!iduals

#li!d to # stoc+holdrs as o$ & "o!)#r.

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PRICE EHAVIOR

In a perfe)t &"rd5 the $t"), pri)e &i fa +% thea*"#nt "f the di!idend "n the ex8di!idend date-

5P

5P - div

E*-

di!idnd

(at

h pric drops

#y th a)ount o$

th cash

di!idnd.

-t -2 -1 0 71 72

Taxes complicate things a bit. Empirically, the

price drop is less than the dividend and occurs

within the first few minutes of the ex-date.

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16-0 THE IRRELEVANCE O7DIVIDEND POLICY

A )"*pein( )a$e )an +e *ade that di!idendpolicyi$ irree!ant-

Sin)e in!e$t"r$ d" n"t need di!idend$ t" )"n!ert

$hare$ t" )a$h@ the% &i n"t pa% hi(her pri)e$ f"rfir*$ &ith hi(her di!idend$-

In "ther &"rd$5 di!idend p"i)% &i ha!e n"i*pa)t "n the !a#e "f the fir* +e)a#$e in!e$t"r$

)an )reate &hate!er in)"*e $trea* the% prefer+% #$in( h"*e*ade di!idend$-

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HO/E/ADE DIVIDENDS

ian)hi In)- i$ a 3. $t"), a+"#t t" pa% a .)a$h di!idend-

"+ In!e$t"r "&n$ ;= $hare$ and prefer$ a 0di!idend-

"+?$ h"*e*ade di!idend $trate(%2

Se . $hare$ ex8di!idend

Cash $ro) di!idnd 5160

Cash $ro) slling stoc+ 50

otal Cash 160

:alu o$ toc+ Holdings 540 ; 80