Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Organization Dividends
Why company pay dividend to shareholders? Why dividends not really affect the shareholders? What the shareholders prefer low or high dividends? Why, Explain?
A company may opt to pay dividend to its shareholders in order to make considerable earnings of the corporate profits. State's law varies on how dividends ought to be paid. Dividends do not really affect the shareholders because it is not compulsory for a company to pay dividends. Kurtz & Boone, (2011) indicates that companies are under no legal obligation to pay dividends to shareholders. Shareholders prefer high dividends because they earn more profits from their shares on the company (Kurtz & Boone, 2011).
In term of Dividends and Signals, Asymmetric information -- managers have more information about the health of the company than investors. Changes in dividends convey information:
Dividend increases
• Management believes it can be sustained
• Expectation of higher future dividends, increasing present value
• Signal of a healthy, growing firm
-- Dividend decreases
• Management believes it can no longer sustain the current level of dividends
• Expectation of lower dividends indefinitely; decreasing present value
• Signal of a firm that is having financial difficulties
Which is better for investors to increase their wealth? In what cases manage prefer to increase the dividend payment? And when they prefer to decrease?
Explain what the reason behind the dividend and signal that the company needs to change the dividend policy to take a decision either to pay more dividends or not? Explain (When they should pay more and when should they pay less)
Base on the signal, the market price will be up or down?
Investors ought to increase their dividends in order to increase their wealth. The reason behind this fact is that increase in dividends shows company's financial health (Kurtz & Boone, 2011). Dividends are of significant importance to the shareholders because they keep enjoying their contribution from the company's profit. There are some cases when the management of a company may prefer to increase the...
For example, a company may opt to increase dividend payment when it intends to look for secure current income. However, a company may opt to decrease dividend payment when it intends to reinvest its funds. This assists in increasing the value of the firm and increasing the market value of its stock (Kurtz & Boone, 2011).
A company may opt to change the dividend policy and increase dividend payment or fail to increase because of its future market predictions. Divided signaling tends to predict the future performance of a company (Kurtz & Boone, 2011). This means that a company may opt to pay more dividends when they signal considerable and great profits in future. However, a company may decide to pay less dividends after predicting a possibility of making minimal profits in future.
3. In Selling stock to raise funds for dividends also creates a "bird-in-the-hand" situation for the shareholder. Again, we are back to "all else equal." Can a higher dividend make a stock more valuable? If a firm must sell more stock or borrow more money to pay a higher dividend now, it must return less to the stockholder in the future. The uncertainty over future income (the firm's business risk) is not affected by dividend policy.
A higher dividend cannot make a stock more valuable. If a company opts to pay more dividends in a certain date and then pay fewer dividends on another date, the value of the stock will remain the same. For example, if a company, which has 100 outstanding shares, opts to pay $110 at date 1 then pay another $242 at date 2, the following expression shows how it the total value of its stock will be;
Let assume that 10% is the required rate of return, $110/1.10+$242(1.10)2=$300
This means that each share of the company is worth ($300/100) =$3.
The same case applies if the company opts to pay $200 dividend at date 1. This translates that the company ought to sell stock worth $90 in order to pay $200 at the end of its financial year. In this case, the available dividend at date 2 is $242 and the new stockholder requires a return of 10%. This means that the shareholders will have to be paid ($90*1.10) =$99. Moreover, this means that there will be ($242-$99) =$143 for the initial stockholders. On…
Reference
Baker, H.K., & Kolb, R.W. (2009). Dividends and dividend policy. Hoboken, N.J: Wiley.
Kurtz, D.L., & Boone, L.E. (2011). Contemporary business. Hoboken, N.J: Wiley.
Even their regular dividends were increased from 8 cents per share per quarter to 16 cents. This is quite a high rate of increase. This sort of announcements was also made by banks like Wachovia and Mellon, and consumer staples like Altria and Kraft. The attitude of the investors can be seen from the fact that the companies which have traditionally paid dividends have performed better in terms of
Dividend Policy What are the practical considerations which are likely to influence a firm's dividend policy? Does a firm's dividend policy matter? Inside a firm's dividend policy there are a number of different factors that will have an impact upon: the amount and if one will be paid to shareholders. The most notable include: the growth rate of the company, credit agreements, earnings stability, maintaining control over the float, uncertainty, the ability
However, theoretically, they could experience a dramatic increase in the future, if the company is run well. According to the article in Forbes magazine entitled "A Progressive dividend policy," the final outcome for Progressive shareholders is likely to be an increase in profits during most ordinary, reasonably profitable years, although now dividends will be paid annually rather than quarterly (Carlson 2006, p.1). (This may also be seen as a
Organizational Analysis Describe the nature of the organization, its size, and any specific human resource challenges it faces. Federal Express (Fed Ex) is involved in the transportation of materials between the different businesses, consumers and individuals. These services are provided using ecommerce solutions that allow customers to set up times for picking up packages and making deliveries. The combination of these factors has turned Fed Ex into a global transportation company. To
There were few positives that could be drawn toward the company's ability to meet the needs of its stakeholders. Former CEO Joseph Nacchio and six other executives of that era faced criminal proceedings. Nacchio was convicted, though that conviction has now been overturned and a retrial scheduled. Since the settlement with the SEC in 2004, Qwest has worked to turn itself around. They have slowly instilled a new organizational culture.
Dividend Tax Capital gains and dividend taxes were both initiated in the early 1970's, by the Democratic Party. Before dividend taxes were enforced, the government made its money through higher aftertax yields, The dividend tax was originally supposed to be a progressive measure, so that the wealthiest paid correspondingly more than the poorest because they had benefited more. At this time, only the wealthy invested in stocks. This is no longer