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Personal finance: regular cash dividend and periodic share repurchase

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Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you? Explain.

Explain a stock dividend and further explain if you would prefer it to a cash dividend.

What are stock splits and how desirable are they?

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Solution Summary

This solution compares regular cash dividends with a periodic share repurchase and also explains stock dividends and stock splits.

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Compare a regular cash dividend with a periodic share repurchase. Which has greater appeal to you? Explain.
Periodic share repurchase are now becoming more popular because it is increasing the earnings per share post repurchase. This is because the number of shares outstanding gets reduced and its cost of capital is also reduced. This can also increase the ownership percentage of the remaining shareholders. Moreover share repurchase does not attract any dividend taxes.

Moreover once a dividend is put in place, it will be negative if it is decreased or ceased in the future but that is not the case with buyback. Thus buyback has more appeal

Explain a stock dividend and further explain if you would prefer it to a cash dividend.

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 ...

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