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Compare Dividends versus Stock Repurchases

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I need assistance analyzing Dividends versus Stock Repurchases of shareholders distribution.

What are some of the differences between Dividends versus Stock Repurchases and which one companies/organizations prefer? What are some of the advantages/disadvantages of having each?

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The response provides you a structured explanation of methods of shareholder distribution . It also gives you the relevant references.

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Dividends versus Stock Repurchases of Shareholders Distribution

Dividends are the money paid by a company to its shareholders from its profits or reserves. When a corporation earns profits it can be distributed to shareholders. This distribution is called dividends. Usually, firms pay a part of the money as dividends and retain a part of the money. This is paid as a fixed amount per share. This is not an expense but a distribution of profits after taxes have been deducted. Stock repurchase on the other hand is the buying back of its own stock by a company (Schorr . L, 2009). The company repurchases its own stock by distributing cash to existing shareholders in return for a part of the company's outstanding equity. The company increases the value of its shares by buying a large number of them on the open market and then takes those shares out of circulation. The number of outstanding shares is reduced; it raises the value of the outstanding shares in the market. This action is normally taken when the top management of a company feels that its shares are undervalued and it has cash to buy back a large number of shares.

Dividends are usually paid in cash. In some ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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