Dividends and Payout Policy Flashcards lecture 11

A set of vocabulary flashcards covering the key terms and concepts related to dividends, payment chronologies, and payout policies from Lecture 11.

Dividend

A payment made out of a firm’s earnings to its owners, in the form of either cash or stock.

Distribution

A payment made by a firm to its owners from sources other than current or accumulated retained earnings.

Regular cash dividends

Cash payments made by a firm to its owners in the normal course of business, usually paid four times per year.

Extra dividends

Cash dividends that may or may not be repeated in the future.

Special dividends

Dividends that are often one-time events that will not be repeated.

Liquidating dividends

Dividends paid when some or all of the business has been liquidated (that is sold off).

Dividend yield

The amount of a cash dividend expressed as a percentage of the market price.

Dividend payout

The amount of a cash dividend expressed as a percentage of net income or earnings per share ($\text{EPS}$).

Declaration date

The date on which the board of directors passes a resolution to pay a dividend.

Ex-dividend date

The date one business day before the date of record, establishing which individuals are entitled to receive a dividend.

Date of record

The date by which a holder must be officially on record to be designated to receive a dividend.

Date of payment

The date on which dividend checks are mailed to shareholders.

Dividend policy

The specific time pattern of dividend payout chosen by a firm.

Homemade dividend policy

A strategy where investors transform a corporation’s dividend policy into a different pattern by buying or selling shares on their own.

Information content effect

The market’s reaction to a change in corporate dividend payout, where stock prices typically rise following unexpected increases and fall following unexpected decreases.

Clientele effect

The argument that different groups of investors desire different levels of dividends, leading a firm to attract a specific investor group based on its payout policy.

Stock repurchase (buyback)

The purchase, by a corporation, of its own shares of stock as an alternative to paying cash dividends.

Open market purchases

A method of share repurchase where a firm buys its own stock in the market like a regular investor without revealing its identity as the buyer.

Tender offer

A repurchase method where a firm announces to all stockholders that it is willing to buy a fixed number of shares at a specific price.

Targeted repurchase

A method where a firm repurchases shares from specific individual stockholders.

Dividend exclusion

A tax break for corporate stockholders that allows them to exclude $50\%$ (or more per the 2017 Tax Cuts and Jobs Act) of received dividends from taxation.

Stock dividend

A payment made by a firm to its owners in the form of additional stock, which increases the shares outstanding and dilutes the value of each share.

Stock split

An increase in a firm’s shares outstanding without any change in owners’ equity, such as a three-for-one split where each old share is replaced by three new shares.