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Regular cash dividend vs. periodic share repurchase.

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

Periodic share repurchases are 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 also increases 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

Would our investors prefer to receive cash dividends or stock dividends? Explain your reasoning.

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.

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

Stock prices fall after the dividend because the stock price adjusts the dividend paid by the firm and therefore the ex dividend price dividend adjusted ...

Solution Summary

This solution involves a comparison of regular cash dividend with a periodic share repurchase.

$2.19