E机械课件1财务管理(英文版)Financial Managementfmch17[1]

=
Capital Gain
Stock Returns: Return =
P1 - Po Po P1 - Po + D1 Po D1 + Po Dividend Yield
=
Capital Gain
Dilemma: Should the firm use retained earnings for: a) Financing profitable capital investments? b) Paying dividends to stockholders?
• Dividends are taxed immediately. Capital gains are not taxed until the stock is sold. • Therefore, taxes on capital gains can be deferred indefinitely.
2002, Prentice Hall, Inc.
Stock Returns: Return =
P1 - Po + D1 Po
Stock Returns: Return =
P1 - Po Po P1 - Po + D1 Po D1 + Po
=
Stock Returns: Return =
P1 - Po Po P1 - Po + D1 Po D1 + Po
2) High Dividends are Best
• Some investors may prefer a certain dividend now over a risky expected capital gain in the future.
2) High Dividends are Best
Return =
P1 - Po Po
+
D1 Po
• If we pay dividends,
Return =
P1 - Po Po
+
D1 Po
• If we pay dividends, stockholders receive an immedBiblioteka Baiduate cash reward for investing,
Return =
P1 - Po Po
+
D1 Po
• With perfect markets, investors are concerned only with total returns, and do not care whether returns come in the form of capital gains or dividend yields.
Return =
P1 - Po Po
+
D1 Po
• With perfect markets, investors are concerned only with total returns, and do not care whether returns come in the form of capital gains or dividend yields.
Return =
P1 - Po Po
+
D1 Po
• If we retain earnings for profitable investments, dividend yield will be zero, but the stock price will increase, resulting in a higher capital gain.
Return =
P1 - Po Po
+
D1 Po
• If we pay dividends, stockholders receive an immediate cash reward for investing, but the capital gain will decrease, since this cash is not invested in the firm.
• Some investors may prefer a certain dividend now over a risky expected capital gain in the future. P1 - Po Po D1 Po
Return =
+
3) Low Dividends are Best
So, dividend policy really involves 2 decisions:
• How much of the firm’s earnings should be distributed to shareholders as dividends, and • How much should be retained for capital investment?
Return =
P1 - Po Po
+
D1 Po
• With perfect markets, investors are concerned only with total returns, and do not care whether returns come in the form of capital gains or dividend yields. • Therefore, one dividend policy is as good as another.
Is Dividend Policy Important?
Three viewpoints: 1) Dividends are Irrelevant. If we assume perfect markets (no taxes, no transaction costs, etc.) dividends do not matter. If we pay a dividend, shareholders’ dividend yield rises, but capital gains decrease.
Return =
P1 - Po Po
+
D1 Po
• If we retain earnings for profitable investments,
Return =
P1 - Po Po
+
D1 Po
• If we retain earnings for profitable investments, dividend yield will be zero,