BLOCK_18e_Chap018_PPT_Accessible
Page 1
Introduction to the concept of learning as a transformative force.
Page 2: Learning Objectives
Understand the decision-making process of the board of directors regarding the firm’s earnings.
Analyze the information derived from dividends and their reflection of a firm’s life cycle stage.
Identify factors influencing dividend policy.
Assess the impact of stock dividends and stock splits on shareholders.
Explain the rationale behind share repurchases instead of increasing dividends.
Page 3: The Marginal Principle of Retained Earnings
Analyze stockholder benefits by comparing:
Rate of return on retained earnings.
Earnings generated from dividends.
Projects should generate a higher rate of return than what shareholders can attain through other investments.
Page 4: Life Cycle Growth and Dividend Policy
Development Stage I: No cash dividends; sales are increasing.
Growth Stage II: Introduction of stock dividends; low cash dividends.
Expansion Stage III: Continued stock dividends, moderate cash dividends, potential stock splits.
Maturity Stage IV: Moderate to high cash dividends reflecting a high payout ratio.
Trends indicate paths of constant growth or potential decline.
Page 5: Dividends as a Passive Variable
Dividends are paid only if better investment opportunities do not exist for the funds.
Retained earnings are the active decision variable, with remaining funds going to shareholders as dividends.
Page 6: An Incomplete Theory
Residual theory states two options:
Retain earnings for reinvestment.
Pay out dividends.
Theory lacks consideration of stockholder preferences regarding dividends.
Page 7: Arguments for the Relevance of Dividends 1
Dividends help alleviate investor uncertainty, potentially affecting stockholder valuation.
Information content of dividends influences stockholder perception of retained earnings.
Page 8: Arguments for the Relevance of Dividends 2
Corporations often analyze investment opportunities against stockholder expectations.
Mature firms balance investment opportunities and stockholder preferences when determining dividend payouts.
Page 9: Corporate Dividend Policy Table 1
Rapid Growth Companies (e.g., Under Armour, Netflix, Tesla): High growth rates, 0% dividends.
Slower Growth Companies (e.g., Target, Apple, Pfizer): Various payout ratios.
Page 10: Corporate Dividend Policy Table 2
Continued analysis of growth rates and dividends for other corporations (e.g., Cisco, Altria).
Page 11: Dividend Stability
Maintaining stable dividend payment is a key concern for stockholders.
Stability can increase the perceived value of the firm and lower the applied discount rate on future dividends.
Page 12: Quarterly Earnings and Dividends Figure
Depicts trends in quarterly earnings and dividend payments over time.
Page 13: Other Factors Influencing Dividend Policy
Factors to consider include:
Firm’s cash flow position.
Access to capital markets.
Management’s desire for control.
Shareholders’ tax positions.
Page 14: Legal Rules
Dividend payouts are restricted to prevent impairment of the firm's initial capital contributions.
Dividends can only be distributed from past/current earnings.
Page 15: Dividend Policy Considerations Table
Financial overview summarizing assets, liabilities, and potential dividends.
Page 16: Cash Position of the Firm
Earnings growth doesn't always align with cash position; firms must carefully evaluate cash flow before deciding on dividends.
Page 17: Access to Capital Markets
Stable dividend-paying firms can access financial markets more easily.
Page 18: Desire for Control
Management may withhold dividends in closely-held firms to avoid cash dilution.
Page 19: Tax Position of Shareholders 1
Higher taxes on dividends may motivate firms to repurchase stocks instead of paying dividends.
Page 20: Tax Position of Shareholders 2
Tax Cuts and Jobs Act impacts dividend taxation, affecting investment decisions.
Page 21: Tax Rates Table
Outline of new tax rates affecting capital gains and qualified dividends post-legislation.
Page 22: Dividend Payment Procedures 1
Overview of cash dividend payments, yields, and important dates associated with dividends.
Page 23: Dividend Payment Procedures 2
Details on Holder-of-Record and Ex-Dividend dates affecting dividend entitlement.
Page 24: Dividend Payment Procedures Conclusion
Clarifies implications of the Ex-Dividend Date and Payment Date for shareholders.
Page 25: Stock Dividends
Represents distribution of additional shares to stockholders, commonly in the 10%-range.
Page 26: Accounting Considerations for a Stock Dividend
Financial position analysis before and after a stock dividend.
Page 27: Value to the Investor 1
Demonstrates calculations of earnings per share pre- and post-stock dividend.
Page 28: Value to the Investor 2
Calculations showing the unchanged market value for investors post-stock dividend.
Page 29: Possible Value of Stock Dividends
If cash dividends remain constant during a stock dividend, total dividends may increase for shareholders.
Page 30: Use of Stock Dividends
Used by growth firms to signify reinvestment; positive or neutral market reactions possible.
Page 31: Stock Splits 1
Similarities to stock dividends; excess distributions treated as stock splits.
Page 32: Stock Splits 2
Market price adjusts post-split, primary purpose being to make shares more accessible.
Page 33: XYZ Corporation Before and After Stock Split
Financial impact of stock split on common stock and retained earnings.
Page 34: Reverse Stock Splits
Purpose and implications of reverse stock splits for firms in distress.
Page 35: Stock Repurchase as an Alternative to Dividends
Buying back shares as an alternative to cash dividends can raise earnings per share.
Page 36: Morgan Corporation Financial Data
Overview of earnings, shares, earnings per share, and market price.
Page 37: Other Reasons for Repurchase
Strategic motivations for repurchasing shares include low selling prices and maintaining demand.
Page 38: Stock Buybacks 1
Table summarizing stock buybacks announced in early 2021.
Page 39: Stock Buybacks 2
Continuation of stock buyback announcements and their financial implications.
Page 40: Dividend Reinvestment Plans
Allows investors to purchase shares with dividends, providing benefits like low transaction costs.
Page 41
Conclusion reinforcing the learning message and rights reserved by McGraw Hill LLC.