fin test #3 section #4

  1. 1. as a firm's investment opportunities increase, dividend payout ratio should
  2. 2. investors use the dividend payment as a source of
    information of expected earnings
  3. 3. relationships between stock prices and dividends may exist to
    implications of dividends for taxes and agency costs
  4. based on expectations theory, firms should avoid
    surprising investors to regard to dividend policy
  5. firms dividend policy should effectively be treated as
    a long term residual
  6. legal restrictions
    statutory restrictions may prevent a company from paying dividends

    debt and preferred stock contracts may impose constraints on dividend policy
  7. 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
  8. 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
  9. earnings predictability
    a firms with stable and predictable earnings is more likely to pay larger dividends
  10. maintaining ownership
    ownership of common stock gives voting rights
  11. dividend payment procedures
    quarterly basis, final approval comes from firm's board of directors
  12. declaration date
    the date when the dividend is formally declared by the bard of directors
  13. date of record
    investors shown to own stocks on this date received the dividend
  14. ex-dividend date
    two working days prior to date of record. shareholders buying stock on or after ex-dividend date won't receive dividends
  15. payment date
    date when dividend checks are mailed
Card Set
fin test #3 section #4
fin test #3 section #4 con divid policy, divid dec in prac