CF

Regular cash dividends

Periodic cash payments to shareholders, typically paid quarterly in North America, semiannually in Europe, and annually in Asia.

Extra (special) dividends

Non-recurring cash payments supplementing regular payouts or distributed under unusual circumstances, such as after an exceptionally profitable year.

Liquidating dividend

A distribution paid when a firm or portion of it is sold, or when payouts exceed cumulative retained earnings, representing a return of capital rather than on capital.

Effect of stock dividends on total shareholder wealth

Leaves total shareholder wealth and proportionate ownership unchanged, as the increase in total share count is offset by a proportional decrease in market price per share.

Effect of cash dividend payments on financial ratios

Reduces liquidity ratios like the quick and current ratios, while increasing leverage ratios such as debt-to-equity and debt-to-assets by reducing cash and stockholders' equity.

Dividend irrelevance theory

Proposition by Miller and Modigliani stating that in a frictionless market, dividend policy has no effect on share value or cost of capital because investors can create homemade dividends.

Bird-in-the-hand theory

Argument by Gordon and Lintner asserting that investors value current dividend yield higher than uncertain future capital gains, so required return on equity decreases as payout increases.

Tax-aversion theory of dividend policy

Concept stating that when dividend income is taxed at higher rates than capital gains, investors prefer low or zero dividend payouts to maximize after-tax returns.

Informational signaling of a dividend initiation

Conveys ambiguous information: either positively signaling optimistic future profitability or negatively signaling a lack of positive-NPV reinvestment opportunities.

Reduction of shareholder-manager agency costs via dividends

Distributing free cash flow as dividends prevents managers from engaging in empire building or investing in negative-NPV projects when growth opportunities are scarce.

Impact of flotation costs on dividend payout policy

Because issuing new stock incurs underwriting fees (making new equity costlier than retained earnings), higher flotation costs encourage lower dividend payout ratios.

Double-taxation system effective tax rate formula

Formula: $\text{Effective Tax Rate} = t_c + (1 - t_c)(t_i)$ where $t_c$ is the corporate tax rate and $t_i$ is the individual shareholder tax rate on dividends.

Split-rate tax system

Corporate tax structure that taxes distributed earnings at a lower corporate rate than retained earnings to mitigate double taxation at the individual level.

Imputation tax system

Tax framework where corporate taxes paid are credited to shareholders, resulting in dividends being effectively taxed at each shareholder's individual marginal tax rate.