Stock Repurchase vs. Dividends
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What are some of the reasons for a company preferring stock repurchases to dividends?
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Solution Summary
The solution compares stock repurchasing and dividends for a company.
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Comparison of regular cash dividend with a periodic share repurchase
As a part of the financing decision the dividend policy of the firm is a residual decision and the dividends are a passive residual. So long firm is able to earn more than the equity capitalization rate than the investors would be content with the firm retaining the earning. In contrast if the firm were able to earn less than the equity capitalization rate investors would prefer to receive the earnings. Firm's Ability to Pay Dividend depends on its funds requirements for growth, ...
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