This paper evaluates the different ways a firm pay out cash to its shareholders such as dividend payout, stock repurchase and new stock dividends as practiced by Marks & Spencer.
The first step toward understanding dividend policy is to recognize that the phrase means different things to different people. A firm's decisions about dividends are often mixed up with other financing and investment decisions. Some firms pay low dividends because management is optimistic about the firm's future and wishes to retain earnings for expansion. In this case the dividend is a by-product of the firm's capital budgeting decision. Another firm might finance capital expenditures largely by borrowing. This releases cash for dividends. In this case the firm's dividend is a by-product of the borrowing decision. There is one possible source of the firm's investment outlays and borrowing which is an issue of stock. Thus dividend policy is defined as the trade-off between retaining earnings on the one hand and paying out cash and issuing new shares on the other. (Brealey & Myers, 2003)
There are many firms that pay dividends and also issue stock from time to time. They could avoid the stock issues by paying lower dividends. Many other firms restrict dividends so that they do not have to issue shares. They could issue stock occasionally and increase the dividend. Both groups of firms are facing the dividend policy trade-off. In short, companies can hand back cash to their shareholders either by paying a dividend or by buying back their stock. (Carlson, 2001)
Most companies pay a regular cash dividend each quarter, but occasionally this regular dividend is supplemented by a one-off extra or special dividend. Dividends are not always in the form of cash. Frequently companies also declare stock dividends. Both stock dividends and splits increase the number of shares, but the company's assets, profits, and total value are unaffected. The distinction between the two is technical. A stock dividend is shown in the accounts as a transfer from retained earnings to equity capital, whereas a split is shown as a reduction in the par value of each share. (DeAngelo, DeAngelo, & Skinner, Special Dividends and the Evolution of Dividend Signaling, 2000)
Many companies have automatic dividend reinvestment plans (DRIPs). Often the new shares are issued at a 5 percent discount from the market price; the firm offers this sweetener because it saves the underwriting costs of a regular share issue. Sometimes 10 percent or more of total dividends will be reinvested under such plans. Sometimes companies not only allow shareholders to reinvest dividends but also allow them to buy additional shares at a discount. In some cases substantial amounts of money have been invested. (Scholes & Wolfson, 1989)
There is an important difference in the taxation of dividends and stock repurchases. Dividends are taxed as ordinary income, but stockholders who sell shares back to the firm pay tax only on capital gains realized in the sale. However, the Internal Revenue Service is on the lookout for companies that disguise dividends as repurchases, and it may decide that regular or proportional repurchases should be taxed as dividend payments. (Jagannathan, Stephens, & Weisbach, 2000)
There are three main ways to repurchase stock.
When a firm wants to pay out cash to its shareholders, it usually declares a cash dividend. The alternative is to repurchase its own stock. The reacquired shares may be kept in the company's treasury and resold if the company needs money. However, for the case of Marks & Spencer, the company opted to restructure its capital through the creation of a new holding company…
DIVIDEND POLICY Name Professor’s name Course Date Dividend is the payments that are given to the shareholders from the profits or reserves of a company. In the case of Associated British food company plc, the shareholders have experienced increasing dividends in the last four years.
Dividends can be paid either in cash or through stocks themselves. The Preferred stock holders are given a fixed dividend every year irrespective of the firms’ profitability whereas the common stock holders are paid from the company’s profitability and hence the dividends change every year.
Basic facilities like water, electricity, food and shelter should be sufficient. Real estates prices will increase when the land is in the center of the city, or in industrial areas, or in residential areas. Infrastructure of the city or town plays an important role because those are the basic amenities that an investor would look into, before buying the land.
The dividend policy of the firm is determined by the fact that the manager's depression to influence the capital structure of the firm by leveraging would allow him to independently act by increasing debt thus reducing equity. Therefore the basis of the dividend policy itself is determined by the manager's ability to manipulate the capital structure of the firm.
The author states that providing dividends to the share holders in the form of cash is dragging out the money available in the firm and therefore the market capitalization of the firm should reduce by the same amount as the total dividends given, because the market capitalization is directly related to the share price.
Stockholders have certain requirements that need to be taken into consideration in determining dividend policy or formulation of an appropriate dividend structure.
Arriva is the one of the biggest names in the transport service business in the
Dividend is the amount that a company pays annually or semi-annually to the shareholders out of its profit (Michaely and Roberts, 2012). However, there are certain guidelines which decide the payment of the earning to the shareholders, these set of guidelines is known as dividend policy.
10 pages (1250 words)Essay
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