Chapter 13

payout policy

decisions that a firm makes regarding whether to distribute cash to shareholders, how much cash to distribute, and the means by which cash should be distributed

date of record (dividends)

set by the firm’s directors, the date on which all persons whose names are recorded as stockholders receive a declared dividend at a specified future time

ex dividend

a period usually beginning 2 business days prior to the date of record, during which a stock is sold without the right to receive the current dividend

payment date

set by the firm’s directors, the actual date on which the firm mails the dividend payment to the holders of the record

dividend policy

the firm’s plan of action to be followed whenever the firm makes a dividend decision

dividend payout ratio

indicates the percentage of each dollar earned that a firm distributes to the owners on the form of cash. It is calculated by dividing the firm’s cash dividend per share by its eps

constant-payout-ratio dividend policy

a dividend policy based on the payment of a certain percentage of earnings to owners in each dividend period

regular dividend policy

a dividend policy based on the payment of a fixed-dollar dividend in each period

target dividend-payout ratio

a dividend policy under which the firm attempts to pay out a certain percentage of earnings as a stated dollar dividend and adjusts that dividend toward a target payout as proven earnings increases occur

low-regular-and-extra dividend policy

a dividend policy based on paying a low regular dividend, supplemented by an additional (“extra”) dividend when earnings are higher than normal in a given period

extra dividend

an additional dividend optionally paid by the firm when earnings are higher than normal in a given period

stock dividend

the payment, to existing owners, of a dividend in the form of stock

stock split

a method commonly used to lower the market price of a firm’s stock by increasing the nr of shares belonging to each shareholder

reverse stock split

a method used to raise the market price of a firm’s stock by exchanging a certain nr of outstanding shares for one new shares