【西南财大课件金融经济学】lecture4-dividendpolicy

P0
100 1.1
100 1.12
173.55
V 100 P0 17,355
Corporate Finance
7
Example
➢ Alternative Policy: Initial dividend = 110 (instead of 100)
➢ This requires additional financing 110 – 100 = 10 per share
➢ The first date the stock trades without dividend is the ex dividend date
➢ Payment date
Corporate Finance
4
Measures of Dividend Policy
➢ Dividend per share ➢ Dividend payout: net profit/shares ➢ Dividend yield: dividend per share/dividend price
(price per share)
Corporate Finance
5
The Relevance of DP
➢ Assumptions:
• No taxes • No financial distress costs • Symmetric information on the firm’s investment
Dividend Policy
September 26, 2005
The Questions
➢ What is dividend policy? ➢ How do companies pay dividends? ➢ How to evaluate a firm’s dividend policy? ➢ Does it matter at all?
➢ Assume new shares are issued ➢ New shareholders require still 10%, so they demand:
1,000 x 1.1 = 1,100
of date 2 cash flow
➢ This leaves 10,000 – 1,100 = 8,900 to the old ones
➢ Holder-of-Record date: list of current shareholders is finalized and closed
➢ Shares are traded cum dividend till (normally) four days before the record date
opportunities • CS (capital structure) and investment opportunities are
independent
➢ Proposition:
• Under the assumptions above two firms with different dividend policies have the same market value (MM)
Corporate Finance
2
What is Dividend Policy?
➢ The choice of paying dividends now or in the future, or to pay dividends or repurchase shares, for a given investment policy
Corporate Finance
8
Example
➢ For the old shareholders:
P0
110 1.1
89 1 .12
173 .55
V 100 P0 17 ,355
Corporate Finance
9
Conclusion
➢ Dividend policy makes no difference because an early increase in dividends is offset by a future decrease in them.
Corporate Finance
6
Example
➢ All equity firm, 100 shares ➢ Liquidation in two years’ time ➢ The firm generates 10,000 a year in the next two
years ➢ Discount rate = 10% ➢ Current policy: pay out all cash flow:
➢ Dividend policy ter cash dividend: the usual dividend • Special dividend
Corporate Finance
3
How do companies pay them?
➢ Declaration date: date when the board announces the dividend payment
➢ Considering the financing cost, the net effect is zero
➢ Check: you could also finance the dividend in the second scenario using debt (instead of new equity)
Corporate Finance
10
Formally
Vt
Div(t) n(t) p(t 1 ku
1)
Remember this follows from the definition of return –first lecture
➢ n(t) = shares outstanding at time t ➢ p(t) = price per share at time t ➢ Div (t) = total dividend pay at t -ie div per share x n(t) ➢ m(t+1) = shares issued between t and t+1