悉尼大学资本市场与公司财务课件Lecture10

Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
Share buybacks
– Share buyback
– Occurs when a company buys back its own shares from shareholders in return for cash
FIGURE n: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
Alternatives to dividends
– So far we have looked at cash dividends, but there are a number of alternatives to dividends available to companies – All of these alternatives can be considered part of dividend policy – These include: – Share buybacks – Dividend reinvestment plans (DRPs)
– May occur on-market (in the course of trading on the ASX) or off-market (via a written offer sent to all shareholders)
– Is similar to a cash dividend, in that the company gives cash to shareholders, however only shareholders offering their shares for sale receive cash in a buyback
– Additional one-off dividends to shareholders
– Dividend policy refers to the decision by companies to pay out net profits as dividends or to retain the profits – The dividend payout ratio quantifies the dividend policy decision by measuring the proportion of profits after tax paid out as dividends
– Set long-run target payout ratios – Focus on the change in dividends – Base dividends on long-run forecast profits and are consequently reluctant to change dividends – Are reluctant to cut dividends
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
How companies decide the amount of dividends paid
– Lintner (1956) established that, in setting dividends, executives:
– Value of shares issued under a DRP for the year ended 31/12/07 by the 5 largest listed companies TABLE 11.2
– During the 2006/2007 financial year, $8.79b was raised by ASX listed companies using DRPs representing 13.3% of total equity capital issued over this period
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
What is dividend policy? (cont)
Example
TABLE 11.1
Earnings per share, dividend per share and dividend payout ratio of Qantas Airways Ltd
PowerPoint to accompany
Chapter 11
Dividend policy
Overview
– When a company generates free cash flows, it can:
– Retain all or part of this cash for future use – Pay a dividend to its shareholders
– After the ex-dividend date:
– New purchasers of the shares are no longer entitled to the dividend payment
– In effect, the promise of a payment detaches from the shares
– Has been legal on the ASX since 1989
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
Share buybacks (cont)
– In theory, a share buyback should have no effect on the share price if the shares are bought back for their fair value
– Example:
– A company with assets worth $20 billion and 20 billion shares on issue undertakes to buyback 1 billion shares – The shares would be worth $1 each – After the buyback the company will have $19 billion in assets and19 billion shares on issue – Each share will be worth $1 before and after the repurchase
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
– The last person to own the shares prior to the ex-dividend date is entitled to the dividend
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
– Avoid brokerage and other transaction costs associated with acquiring shares – Are deemed to have received the cash dividend and are taxed on it – Receive franking credits that can be used to offset all or part of their tax liability – Do not typically know the number of shares they will receive
– However, most companies outperform the market following the buyback announcement (why?)
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
What is dividend policy?
– Companies typically pay dividends twice a year – They may also elect to pay “special” dividends
– What were the decision-making processes that led Qantas to pay a dividend of 30 cents in 2007?
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
How companies pay dividends (cont)
– The price of the shares typically falls by the value of the dividend on the ex-dividend date – Share price around the ex-dividend date of the Westfield group on 11 Feb 2008
– In this lecture we will discuss:
– – – – What dividend policy is How companies pay dividends Alternatives to dividends How companies decide on the amount of dividends paid – Impact of dividend policy on shareholder wealth
Frino, Hill, Chen: Introduction to Corporate Finance, 4e © 2009 Pearson Australia
Dividend reinvestment plans (cont)
– DRPs have become a popular way to raise equity capital
How companies pay dividends
– Once a dividend is declared at the AGM, the company’s shares trade cum-dividend
– This means that the shares trade with the promise of a dividend attached to them
Dividend reinvestment plans
– A dividend reinvestment plan (DRP) gives shareholders the option of receiving new shares instead of dividends – Under a DRP, shareholders: