1
Dividend Policy and
Internal Financing
.
Chapter 17
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
3
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
A firm calculates and reports Earnings per Share
4
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
A firm calculates and reports earn Earnings per Share
Management will reinvest part of earnings per share in
the company and pay part as dividend
5
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
A firm calculates and reports earn Earnings per Share
Management will reinvest part of earnings per share in
the company and pay part as dividend
Income Statement
Sales
$3,000,000
Net Income
Dividends Paid
Addition to RE
$1,000,000
1 Million Shares Outstanding
6
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
Stockholders earn Earnings per Share
Management will reinvest part of earnings per share in
the company and pay part as dividend
Income Statement
Sales
$3,000,000
Net Income
Dividends Paid
Addition to RE
$1,000,000
1 Million Shares Outstanding
EPS = $1.00
7
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
Stockholders earn Earnings per Share
Management will reinvest part of earnings per share in
the company and pay part as dividend
Income Statement
Sales
$3,000,000
Net Income
Dividends Paid
Addition to RE
$1,000,000
1 Million Shares Outstanding
If have a 50% dividend payout
each share of stock will receive a
50¢ dividend
8
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
Stockholders earn Earnings per Share
Management will reinvest part of earnings per share in
the company and pay part as dividend
Income Statement
Sales
$3,000,000
Net Income
Dividends Paid
Addition to RE
$1,000,000
500,000
$500,000
1 Million Shares Outstanding
If have a 50% dividend payout
each share of stock will receive a
50¢ dividend
$500,000 paid to stockholders and
$500,000 is reinvested in the firm
9
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
Stockholders earn Earnings per Share
Management will reinvest part of earnings per share in
the company and pay part as dividend
Income Statement
Sales
$3,000,000
Net Income
Dividends Paid
Addition to RE
$1,000,000
1 Million Shares Outstanding
If it has a 0% dividend payout, all
earnings are reinvested in the firm
10
Dividend Policy and Internal Financing
Dividend Policy
Dividend Payout Ratio = Dividend per Share
Earnings per Share
Stockholders earn Earnings per Share
Management will reinvest part of earnings per share in
the company and pay part as dividend
Income Statement
Sales
$3,000,000
Net Income
Dividends Paid
Addition to RE
$1,000,000
0
$1,000,000
1 Million Shares Outstanding
If have a 0% dividend payout, all
earnings are reinvested in the firm
$0 paid to stockholders and
$1,000,000 is reinvested in the firm
11
Can Dividend Policy Affect Share Price
Three Theories of Dividends
Irrelevance
Dividends Increase Stock Price
Dividends Decrease Stock Price
12
Can Dividend Policy Affect Share Price
13
View 1: Irrelevance Dividend Policy does not affect stock price
Assumes Perfect Markets
No brokerage fees
No floatation costs of issuing shares
No taxes
Equal access to information
Manager's act in shareholders' best interests
14
Can Dividend Policy Affect Share Price
View 1: Irrelevance Dividend Policy does not affect stock price
Assumes Perfect Markets
No brokerage fees
No floatation costs of issuing shares
No taxes
Equal access to information
Manager's act in shareholders' best interests
52 Weeks
Hi
Lo Stock
s 42½ 29 MKPS
Yld
% PE
Vol
100s
Hi
Lo
Net
Close Chg
MK 1.75 5.1 24
5067
35
33
34¼ -1
Sym Div
When dividend of $1.75 is paid. the stock price falls by
exactly the same amount.
15
Can Dividend Policy Affect Share Price
View 1: Irrelevance Dividend Policy does not affect stock price
Assumes Perfect Markets
No brokerage fees
No floatation costs of issuing shares
No taxes
Equal access to information
Manager's act in shareholders' best interests
52 Weeks
Hi
Lo Stock
s 42½ 29 MKPS
Yld
% PE
Vol
100s
Hi
Lo
Net
Close Chg
MK 1.75 5.1 24
5067
35
33
34¼ -1
Sym Div
When dividend of $1.75 is paid. the stock price falls by
exactly the same amount.
$34.25 – $1.75 = $32.50
Can Dividend Policy Affect Share Price
16
View 1: Irrelevance Dividend Policy does not affect stock price
Assumes Perfect Markets
No brokerage fees
No floatation costs of issuing shares
No taxes
Equal access to information
Manager's act in shareholders' best interests
Dividends are Irrelevant Since:
No net gain to investor
Can Dividend Policy Affect Share Price
17
View 1: Irrelevance Dividend Policy does not affect stock price
Assumes Perfect Markets
No brokerage fees
No floatation costs of issuing shares
No taxes
Equal access to information
Manager's act in shareholders' best interests
Dividends are Irrelevant Since:
No net gain to investor
Without receiving dividend, an investor can sell shares
of stock costlessly and create their own "dividend"
Can Dividend Policy Affect Share Price
18
View 1: Irrelevance Dividend Policy does not affect stock price
Assumes Perfect Markets
No brokerage fees
No floatation costs of issuing shares
No taxes
Equal access to information
Manager's act in shareholders' best interests
Dividends are Irrelevant Since:
No net gain to investor
Without receiving dividend, an investor can sell shares
of stock costlessly and create their own "dividend"
If the firm pays a large dividend, but needs cash to
invest can sell additional shares of stock costlessly.
Can Dividend Policy Affect Share Price
View 2: High Dividends Increase Stock Value
Theory states:
Dividends are more predicable that capital gains,
so investors prefer dividends--"Bird in the Hand
theory”
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Can Dividend Policy Affect Share Price
View 2: High Dividends Increase Stock Value
Theory states:
Dividends are more predicable that capital gains,
so investors prefer dividends--"Bird in the Hand
theory"
To be indifferent, investors will require a higher rate
on capital gains than dividends
20
Can Dividend Policy Affect Share Price
View 2: High Dividends Increase Stock Value
Theory states:
Dividends are more predicable that capital gains,
so investors prefer dividends-- "Bird in the Hand
theory”
To be indifferent, investors will require a higher rate
on capital gains than dividends
Critics of this theory
Point out cash flows of overall firm are not
affected by dividends
If investors want cash, they should leave money
in a bank account
21
Can Dividend Policy Affect Share Price
View 3: Low Dividends Increase Stock Value
Based on Tax Effects:
Individual investors must pay taxes on dividends as
the dividends are received
23
Can Dividend Policy Affect Share Price
24
View 3: Low Dividends Increase Stock Value
Based on Tax Effects:
Individual investors must pay taxes on dividends as
the dividends are received
Individual investors can defer taxes on capital gains
until they sell the stock
Before 1987, Capital Gains were
taxed at a lower rate than
dividends. Again today, capital gain
taxes are lower than current income
taxes
Can Dividend Policy Affect Share Price
View 3: Low Dividends Increase Stock Value
Based on Tax Effects:
Individual investors must pay taxes on dividends as
the dividends are received
Individual investors can defer taxes on capital gains
until they sell the stock
Before 1987, Capital Gains were
taxed at a lower rate than dividends
However, corporations may exclude 70% of
dividends from corporate income taxes, so they
may actually prefer a higher level of dividends
25
Can Dividend Policy Affect Share Price
View 3: Low Dividends Increase Stock Value
Based on Tax Effects:
Individual investors must pay taxes on dividends as
the dividends are received
Individual investors can defer taxes on capital gains
until they sell the stock
Before 1987, Capital Gains were
taxed at a lower rate than dividends
However, corporations may exclude 70% of
dividends from corporate income taxes, so they
may actually prefer a higher level of dividends
Investors prefer the dividend policy that gives the
highest after-tax return
26
Residual Dividend Theory
Recognizes that floatation costs
involved in issuing new stock are very
high
27
Residual Dividend Theory
Recognizes that floatation costs
involved in issuing new stock are very
high
Companies with investment opportunities
which require capital would prefer to use
internal funds rather than issue new stock
28
Residual Dividend Theory
29
Recognizes that floatation costs
involved in issuing new stock are very
high
Companies with investment opportunities
which require capital would prefer to use
internal funds rather than issue new stock
Residual Dividend Method
Accept all investments with positive net present values
Residual Dividend Theory
30
Recognizes that floatation costs
involved in issuing new stock are very
high
Companies with investment opportunities
which require capital would prefer to use
internal funds rather than issue new stock
Residual Dividend Method
Accept all investments with positive net present values
Use retained earnings to finance investments to the
extent possible
Residual Dividend Theory
31
Recognizes that floatation costs
involved in issuing new stock are very
high
Companies with investment opportunities
which require capital would prefer to use
internal funds rather than issue new stock
Residual Dividend Method
Accept all investments with positive net present values
Use retained earnings to finance investments to the
extent possible
If earnings left over after making investments, pay a
dividend with the residual
Residual Dividend Theory
32
Recognizes that floatation costs are
involved in issuing new stock are very
high
Companies with investment opportunities
which require capital would prefer to use
internal funds rather than issue new stock
Residual Dividend Method
Accept all investments with positive net present values
Use retained earnings to finance investments when
possible
If retained earnings left over after making investments,
pay a dividend with the residual
If there are no residual funds, pay no dividend
Residual Dividend Theory
33
Recognizes that floatation costs when
issuing new stock are very high
Companies with investment opportunities
which require capital would prefer to use
internal funds rather than issue new stock
Residual Dividend Method
Accept all investments with positive net present values
Use retained earnings to finance investments when
possible
If retained earnings left over after making investments,
pay a dividend with the residual
If there are no residual funds, pay no dividend
Residual Theory minimizes floatation costs
The Clientele Effect
Relaxes the assumption of no brokerage fees: in
reality, investors must pay brokerage fees every
time they buy or sell stock
34
The Clientele Effect
Relaxes the assumption of no brokerage fees: in
reality, investors must pay brokerage fees every
time they buy or sell stock
Recognizes that investors are not all alike
35
The Clientele Effect
36
Relaxes the assumption of no brokerage fees: in
reality, investors must pay brokerage fees every
time they buy or sell stock
Recognizes that investors are not all alike
The Clientele Effect
Some investors need regular cash from stock: to avoid
brokerage fees should purchase and hold high
dividend paying stocks
The Clientele Effect
37
Relaxes the assumption of no brokerage fees: in
reality, investors must pay brokerage fees every
time they buy or sell stock
Recognizes that investors are not all alike
The Clientele Effect
Some investors need regular cash from stock: to avoid
brokerage fees should purchase and hold high
dividend paying stocks
Other investors prefer no cash from stocks: to defer
taxes and brokerage fees on reinvested cash
(dividends), these investors should buy low or no
dividend paying stocks
The Clientele Effect
38
Recognizes that investors are not all alike
The Clientele Effect
Some investors need regular cash from stock: to avoid
brokerage fees should purchase and hold high
dividend paying stocks
Other investors prefer no cash from stocks: to defer
taxes and brokerage fees on reinvested cash
(dividends), these investors should buy low or no
dividend paying stocks
There is no correct dividend policy. Firms should have
a stated dividend policy to keep clientele of investors
The Information Effect
Changes in dividends may provide a signal
of firm's financial condition
Earnings UP 10%
50¢ Dividend Increase
Dividend Increase - May
signal managers expect
higher earnings in the future
39
The Information Effect
Changes in dividends may provide a signal
of firm's financial condition
Earnings OFF 10%
Dividend Decrease - May
signal managers expect
earnings downturn
25¢ Dividend Cut
40
The Information Effect
Changes in dividends may provide a signal
of firm's financial condition
Earnings OFF 10%
Dividend Decrease - May
signal managers expect
earnings downturn
25¢ Dividend Cut
In practice, stock price usually rises with a
unexpected dividend increase and falls with a
41
Drop Agency Costs
42
Expectations Theory
Investors have expectations of managers'
actions
If managers announce a dividend at the level
that investors expect, stock price will not be
affected
50
51
Expectations Theory
Investors have expectations of managers'
actions
If managers announce a dividend at the level
that investors expect, stock price will not be
affected
$2.25 share?
$2.25/share
Investor
Manager
52
Expectations Theory
Investors have expectations of managers'
actions
If managers announce a dividend at the level
that investors expect, stock price will not be
affected
$2.25 share?
$2.25/share
Investor
Manager
Expectations Theory
Investors have expectations of managers'
actions
If managers announce unexpectedly high or low
dividend, stock price will be affected
53
54
Expectations Theory
Investors have expectations of managers'
actions
If managers announce unexpectedly high or low
dividend, stock price will be affected
$3.25 share?
$2.25/share
Investor
Manager
55
Expectations Theory
Investors have expectations of managers'
actions
If managers announce unexpectedly high or low
dividend, stock price will be affected
$3.25 share?
$2.25/share
Investor
Manager
56
Expectations Theory
Investors have expectations of managers'
actions
If managers announce unexpectedly high or low
dividend, stock price will be affected
$3.25 share?
$2.25/share
If dividend is lower than
expected, investors may
believe earnings will be
lower than expected and
stock price will go down
Investor
Manager
57
Expectations Theory
Investors have expectations of managers'
actions
If managers announce unexpectedly high or low
dividend, stock price will be affected
$1.75 share?
$2.25/share
Investor
Manager
58
Expectations Theory
Investors have expectations of managers'
actions
If managers announce unexpectedly high or low
dividend, stock price will be affected
$1.75 share?
$2.25/share
Investor
Manager
59
Expectations Theory
Investors have expectations of managers'
actions
If managers announce unexpectedly high or low
dividend, stock price will be affected
$1.75 share?
$2.25/share
If dividend is higher than
expected, investors may
believe earnings will be
higher than expected and
stock price will go up
Investor
Manager
Summary of Dividend Theories
 Tests of dividend policy have not found
conclusively that dividends affect stock price
 The majority of managers believe that dividend
policy is important
 There are tax disadvantages to paying dividends
 Almost all companies pay regular dividends
 Dividend Policy is a "puzzle" to academic
researchers
60
Dividends in Practice
What determines dividends?
There may be legal restrictions on dividends
 State laws have restrictions on dividends if company is not
financially sound
 Bond and Preferred Stock contracts may restrict dividends
Liquidity Position
 The firm must have sufficient cash to pay the dividend
Sources of Financing
 Small firms may not be able to easily raise money in the capital
markets so they will have low dividends
Earnings Predictability
 Firms with stable earnings typically pays higher dividends as it
expects to have future profits needed to pay dividend
61
Alternative Dividend Policies
Constant Dividend Payout Ratio
every year firm pays the same percentage of earnings as a
dividend to shareholders
62
Alternative Dividend Policies
Constant Dividend Payout Ratio
every year firm pays the same percentage of earnings as a
dividend to shareholders
Example:
Firm pays a constant 40% dividend annually
63
Alternative Dividend Policies
Constant Dividend Payout Ratio
every year firm pays the same percentage of earnings as a
dividend to shareholders
Example:
Firm pays a constant 40% dividend annually
EPS
Dividend
1994
$2.00
1995 1996
$5.00 $3.00
64
Alternative Dividend Policies
Constant Dividend Payout Ratio
every year firm pays the same percentage of earnings as a
dividend to shareholders
Example:
Firm pays a constant 40% dividend annually
EPS
Dividend
2.00 x .40
1994
$2.00
$0.80
1995 1996
$5.00 $3.00
65
Alternative Dividend Policies
Constant Dividend Payout Ratio
every year firm pays the same percentage of earnings as a
dividend to shareholders
Example:
Firm pays a constant 40% dividend annually
EPS
Dividend
1994
$2.00
$0.80
5.00 x .40
1995 1996
$5.00 $3.00
$2.00
66
Alternative Dividend Policies
Constant Dividend Payout Ratio
every year firm pays the same percentage of earnings as a
dividend to shareholders
Example:
Firm pays a constant 40% dividend annually
EPS
Dividend
1994
$2.00
$0.80
1995 1996
$5.00 $3.00
$2.00 $1.20
3.00 x .40
67
Alternative Dividend Policies
Constant Dividend Payout Ratio
every year firm pays the same percentage of earnings as a
dividend to shareholders
Example:
Firm pays a constant 40% dividend annually
EPS
Dividend
1994
$2.00
$0.80
1995 1996
$5.00 $3.00
$2.00 $1.20
Dollar dividend fluctuates every year
68
Alternative Dividend Policies
Stable Dollar Dividend
Dividend does not change quickly: small increases in dollar
dividend when management is certain higher dividend can be
maintained.
69
70
Alternative Dividend Policies
Stable Dollar Dividend
Dividend does not change quickly: small increases in dollar
dividend when management is certain higher dividend can be
maintained.
Example:
EPS
Dividend
1991 1992
$2.00 $2.20
1993
$2.10
1994
$3.00
1995 1996
$2.90 $3.10
71
Alternative Dividend Policies
Stable Dollar Dividend
Dividend does not change quickly: small increases in dollar
dividend when management is certain higher dividend can be
maintained.
Example:
EPS
Dividend
1991 1992
$2.00 $2.20
$0.80 $0.80
1993
$2.10
$0.80
1994
$3.00
$0.80
1995 1996
$2.90 $3.10
$0.80 $1.20
72
Alternative Dividend Policies
Stable Dollar Dividend
Dividend does not change quickly: small increases in dollar
dividend when management is certain higher dividend can be
maintained.
Example:
EPS
Dividend
1991 1992
$2.00 $2.20
$0.80 $0.80
1993
$2.10
$0.80
1994
$3.00
$0.80
1995 1996
$2.90 $3.10
$0.80 $1.20
Increase dividend in
1996 when EPS levels
out around $3.00
Alternative Dividend Policies
Summary
Constant Dividend Payout
Stable Dollar Dividend
Small regular dividend plus year-end extra payment
Regular dividend is small, if earnings permit pay an
extra dividend at end of year
73
Alternative Dividend Policies
Summary
Constant Dividend Payout
Stable Dollar Dividend
Small regular dividend plus year-end extra payment
Regular dividend is small, if earnings permit pay an
extra dividend at end of year
Most popular method is the Stable Dollar Dividend
74
Dividend Payment Procedures
Dividends are usually paid quarterly
75
Dividend Payment Procedures
Dividends are usually paid quarterly
Example
On August 25, 1995 Southside Bankshares announced a
quarterly dividend of $1 per share to be paid to share
holders on record September 9, 1995, payable September
15, 1995
76
77
Dividend Payment Procedures
Dividends are usually paid quarterly
Example
On August 25, 1995 Southside Bankshares announced a
quarterly dividend of $1 per share to be paid to share
holders on record September 9, 1995, payable September
15, 1995
25
31 1
August
Declaration Date
Date that dividend is
announced
5
9
September
15
78
Dividend Payment Procedures
Dividends are usually paid quarterly
Example
On August 25, 1995 Southside Bankshares announced a
quarterly dividend of $1 per share to be paid to share
holders on record September 9, 1995, payable September
15, 1995
25
31 1
August
Declaration Date
5
9
15
September
Date of Record
All owners of record will
receive the dividend.
79
Dividend Payment Procedures
Dividends are usually paid quarterly
Example
On August 25, 1995 Southside Bankshares announced a
quarterly dividend of $1 per share to be paid to share
holders on record September 9, 1995, payable September
15, 1995
25
31 1
August
5
9
September
- 4 days
Declaration Date
Date of Record
15
80
Dividend Payment Procedures
Dividends are usually paid quarterly
Example
On August 25, 1995 Southside Bankshares announced a
quarterly dividend of $1 per share to be paid to share
holders on record September 9, 1995, payable September
15, 1995
25
31 1
5
August
Declaration Date
9
September
Ex-Dividend Date
Date of Record
To allow time for the official list of
stockholders to be updated, stockholders
must buy stock before the ex-dividend
date (4 days prior to date of record)
15
81
Dividend Payment Procedures
Dividends are usually paid quarterly
Example
On August 25, 1995 Southside Bankshares announced a
quarterly dividend of $1 per share to be paid to share
holders on record September 9, 1995, payable September
15, 1995
25
31 1
5
August
Declaration Date
9
15
September
Ex-Dividend Date
Date of Record
Payable
Date
Date that the dividend is paid
out to the stockholders.
Stock Dividends and Splits
Stock Dividends
 Company issues new shares and sends them on
a pro rata basis to current shareholders instead
of using cash to pay a dividend
82
Stock Dividends and Splits
 Company issues new shares and sends them on
a pro rata basis to current shareholders instead
of using cash to pay a dividend
 Number of shares increase, no money is
collected or paid by the company
83
Stock Dividends and Splits
 Company issues new shares and sends them on
a pro rata basis to current shareholders instead
of using cash to pay a dividend
 Number of shares increase, no money is
collected or paid by the company
 With a 10% stock dividend, an investor will
receive one tenth of a share for every share
owned.
84
Stock Dividends and Splits
 Company issues new shares and sends them on
a pro rata basis to current shareholders instead
of using cash to pay a dividend
 Number of shares increase, no money is
collected or paid by the company
 With a 10% stock dividend, an investor will
receive one tenth of a share for every share
owned.
 If company issues more than a 25% stock
dividend it is considered a stock split
Only difference between a stock dividend and stock
split is accounting treatment on the balance sheet.
87
Rationale for Stock Split or Dividend
Are Investors Better Off?
Example
Katie Corporation announces a 50% stock split. Before the
split Katie has 100,000 shares of stock outstanding at a
price of $50 per share.
88
Rationale for Stock Split or Dividend
Are Investors Better Off?
Example
Katie Corporation announces a 50% stock split. Before the
split Katie has 100,000 shares of stock outstanding at a
price of $50 per share.
Investors will receive one-half a share for
every share outstanding
89
Rationale for Stock Split or Dividend
Are Investors Better Off?
Example
Katie Corporation announces a 50% stock split. Before the
split Katie has 100,000 shares of stock outstanding at a
price of $50 per share.
Investors will receive one-half a share for
every share outstanding
No new money going into the firm so overall the stock
will still be worth $50 x 100,000 = $5 million
90
Rationale for Stock Split or Dividend
Are Investors Better Off?
Example
Katie Corporation announces a 50% stock split. Before the
split Katie has 100,000 shares of stock outstanding at a
price of $50 per share.
Investors will receive one-half a share for
every share outstanding
No new money going into the firm so overall the stock
will still be worth $50 x 100,000 = $5 million
$5 million = $33.33
Each share will be worth
150,000 shares
91
Rationale for Stock Split or Dividend
92
Are Investors Better Off?
Example
Katie Corporation announces a 50% stock dividend. Before
the dividend Katie has 100,000 shares of stock outstanding
at a price of $50 per share.
Investors will receive one-half a share for
every share outstanding
No new money going into the firm so overall the stock
will still be worth $50 x 100,000 = $5 million
$5 million = $33.33
Each share will be worth
150,000 shares
Alternative way to solve: Price before div = $50 = $33.33
1 + % dividend
1 + .50
Rationale for Stock Split or Dividend
93
Are Investors Better Off?
Example
Katie Corporation announces a 50% stock split. Before the
split Katie has 100,000 shares of stock outstanding at a
price of $50 per share.
Investors will receive one-half a share for
every share outstanding
No new money going into the firm so overall the stock
will still be worth $50 x 100,000 = $5 million
$5 million = $33.33
Each share will be worth
150,000 shares
Alternative way to solve: Price before div = $50 = $33.33
1 + % dividend
1 + .50
Investors are no better off, have 50% more
shares of stock, each share is worth less.
Rationale for Stock Split or Dividend
94
If Investors wealth is not increased, why issue stock
dividends?
Optimal Price Range
Some managers believe stock price should not be too
high an will split the stock or reduce the dividend to
reduce the price
Information
Stock splits and dividends are seen as a signal that the
company is growing
Cash Dividend Substitute
Companies who do not have cash available to pay a
regular dividend may issue a stock dividend instead
Stock Repurchases
Company buys back its own stock from investors
Repurchase as an alternative to dividend
Investors who sell shares receive cash -- must pay
taxes on any capital gain.
Investors who do not want cash simple do not sell
shares
Company pays excess cash to stockholders.
Repurchase as a financing method
Firm may issue debt and then repurchase stock
This would result in a higher debt ratio
Repurchase as an investment decision
If management thinks that their stock price is too low,
may buy back its own stock
95
Stock Repurchase Procedure
Market Purchase
Firm buys its own shares through a broker at the
market price.
96
Stock Repurchase Procedure
Market Purchase
Firm buys its own shares through a broker at the
market price.
Tender Offer
Company announces it will repurchase shares at a
fixed price.
Must announce a price above the current
market price to induce shareholders to sell
97
Stock Repurchase Procedure
98
Market Purchase
Firm buys its own shares through a broker at the
market price.
Tender Offer
Company announces it will repurchase shares at a
fixed price.
Negotiated Offer
Company negotiates buying stock from specific group
of stockholders.
Often done to buy out dissident shareholders.
Stock Repurchase Procedure
99
Market Purchase
Firm buys its own shares through a broker at the
market price.
Tender Offer
Company announces it will repurchase shares at a
fixed price.
Negotiated Offer
Company negotiates buying stock from specific group
of stockholders.
Often done to buy out dissident shareholders.
Greenmail - Dissident shareholders ask management
to buy their shares at an inflated price or dissidents will
take over the firm
100