Dividend Policy

Flashcards covering key vocabulary related to dividend policy and its implications for firms and investors.

Dividend Policy

The strategy a company uses to decide how much it will pay out to shareholders in dividends.

Cash Dividend

A payment made by a corporation to its shareholders in cash.

Share Repurchase

A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares.

Dividend Payout Ratio

The ratio of total dividends paid to net income, indicating what portion of earnings a company pays to shareholders.

Ex-Dividend Date

The date two business days before the record date, whereby investors purchasing shares on or after this date will not receive the declared dividend.

Stock Dividend

A pro-rata distribution of additional shares to existing shareholders, usually expressed as a fraction of shares held.

Stock Split

A corporate action that increases the number of outstanding shares while reducing the par value per share, keeping the overall equity value unchanged.

Residual Dividend Policy

A policy where dividends are paid from the remaining earnings after the firm has financed all its acceptable investment opportunities.

Personal Taxes on Dividends

Cash dividends are fully taxable in the year they are received, while capital gains are taxed only when shares are sold.

Dividend Irrelevancy Proposition

The theory that suggests that the value of a firm is not affected by how it distributes dividends, as investors can replicate cash flows via capital gains or selling shares.

Tender Offer

An offer made by a company to buy back shares from shareholders at a specified price, usually at a premium to encourage acceptance.

Their own company statement

A common phrase used by companies when repurchasing shares, indicating management's belief in the undervaluation of the firm's stock.

Announcement Date

The date on which a company's board of directors announces that a dividend will be paid.

Dividend Payment Date

The date on which a declared dividend is actually paid to shareholders.

Market Price of Stock

The current price at which a given stock is bought or sold in the marketplace, influenced by dividend and repurchase announcements.