1. as a firm's investment opportunities increase, dividend payout ratio should
decrease
2. investors use the dividend payment as a source of
information of expected earnings
3. relationships between stock prices and dividends may exist to
implications of dividends for taxes and agency costs
based on expectations theory, firms should avoid
surprising investors to regard to dividend policy
firms dividend policy should effectively be treated as
a long term residual
legal restrictions
statutory restrictions may prevent a company from paying dividends
debt and preferred stock contracts may impose constraints on dividend policy
statutory restictions
may prevent a company from paying dividends by: a) firm's liab > assets
b) dividend > RE (accum profits)
c) if dividend is being paid from cap invested in firm
Legal constraints
firm may show RE but it must have cash to pay dividends... firm can still be extremely profitable and still be cash poor b/c dividends are paid with cash and not RE
earnings predictability
a firms with stable and predictable earnings is more likely to pay larger dividends
maintaining ownership
ownership of common stock gives voting rights
dividend payment procedures
quarterly basis, final approval comes from firm's board of directors
declaration date
the date when the dividend is formally declared by the bard of directors
date of record
investors shown to own stocks on this date received the dividend
ex-dividend date
two working days prior to date of record. shareholders buying stock on or after ex-dividend date won't receive dividends
payment date
date when dividend checks are mailed
Author
abifulco
ID
53921
Card Set
fin test #3 section #4
Description
fin test #3 section #4 con divid policy, divid dec in prac