Introduction:
Dividends represent one of the methods in which firms divided their profit generated by companies' activity. Dividends are usually a cash payment, which are paid on a quarterly or an annual. It is depends on the company dividend policy and, currently, there are many discussions about whether it is necessary for organizations to pay dividends or it is better not to pay them. Depending on the aims of the firm and current position in the market, a company may take one or another decision. This work will deal with questions of why companies pay dividends and why it is very important.
The dividend policy of the company has a great influence not only on the capital structure, but also on the investment attractiveness of a firm. It must be also be noted that if dividends are rather high and paid regularly, it is one of the signs that the company has been working successfully and earns profit.
Hence, dividends are an essential link of the company's financial policy and present an important part of the management strategy of the company, affecting the processes of investment and use of capital.
Literature review:
Currently, many organizations pay dividends to their shareholders, which represent the amount of money of company’s profit. The methods and decision on paying dividends depends on the goals of organizations, therefore, every company determines their own dividend policy.
First of all, it is necessary to define the notion of dividends. Many researchers determine them as payments which a firm made to its shareholders (Brealey, et al., 2008). Damodaran (2001) states another way to describe dividends as one of the mode which help shareholders to return their money.
Having considered the definition, the work ca...
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... attract new investors from the market, to demonstrate good results in companies’ performance, to control improper managers and besides the dividends can solve the problem of massive money supply.
Works Cited
Cohen, Gil and Yagil, Joseph (2009) ‘Why do financially distressed firms pay dividends?’ Applied Economics Letters, 16, pp. 1201-1204
DeAngelo, H., DeAngeloa, L., Stulz, R.M. (2006) ‘Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory’ Journal of Financial Economics, 81, pp. 227–254
Feldstein, Martin and Green, Jerry (1983) ‘Why do companies pay Dividends?’American Economic Review, Vol. 73, No. 1, pp. 17-30
Lewis, T. W. Cheng, Hung Gay Fung and Leung, T. Y. (2007) ‘Why do poorly performing firms pay cash dividends in Mainland China?’International Review of Accounting, Banking and Finance, Vol. 1, No. 1, pp.55-75
Overall, General Motors has had five profitable years with increasing sales during the same period. GM has also paid a fixed dividend to its shareholders over the same period. The one-year, which was below average for GM, was 1998. During this period, GM was restructuring its top management and operations and also incurred a union strike of 54 days. However, GM did return to better performance in 1999 and 2000. GM overall was able to attain a fixed dividend of $2.00 per share and increase the shareholders value over the past five years.
...are accountable to a board of directors and shareholders and publish annual reports that are public record so to make sure there financial standards are on the up and up.
We defined several criteria to determine our choice – return, risks and other quantitative and qualitative factors. Targeting a debt ratio of 40% will maximize the firm’s value. A higher earning’s per share and dividends per share will lead to a higher stock price in the future. Due to leveraging, return on equity is higher because debt is the major source of financing capital expenditures. To maintain the 40% debt ratio, no equity issues will be declared until 1985. DuPont will be financing the needed funds by debt. For 1986 onwards, minimum equity funds will be issued. It will be timed to take advantage of favorable market condition. The rest of the financing required will be acquired by issuing debt.
... Capital, Corporation Finance and the Theory of Investment", The American Economic Review, vol. 48, no. 3, pp. 261-297.
Dividends is used often with the stock market, dividends are profit you receive when the company makes a profit. If the company does not make a profit, you will not receive a dividend reimbursement. Payments can be reinvested, which helps build wealth because you are increasing your portfolio. You can also so use this cash for whatever you like.
In mid September 2005, Ashley Swenson, the chief financial officer of this large CAD/CAM equipment manufacturer must decide whether to pay out dividends to the firm¡¦s shareholders or repurchase stock. If Swenson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising and change its corporate name to reflect its new outlook. The case serves a review of the many practical aspects of the dividend and share buyback decisions, including(1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions.
When discussing the cost of equity capital, or the rate of return required by investors for their share expenses, there are three main models widely used for analyzation. These models are the dividend growth model, which operates on the variable of growth and future trends, the capital asset pricing model (CAPM), which operates on the premise that higher returns are a result of higher risk, and the arbitrage pricing theory (APT), which has a more flexible set of criteria than CAPM and takes advantage of mispriced securities
Miller, M.H. and Modigliani, F., 1961., Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4), pp. 411-433.
You would not buy a home, car or other large purchases without researching what product offered you the most for your money. The same is true when investing in a company. Investors do avid research on multiple companies to find what company matches the investors' criteria. In this paper Team C will research both AT&T and Verizon's financial documents. Team C will compare selected ratios, cash flow and make recommendations how both companies can manage cash flow for the future.
Every action or proposal needs to balance equity and efficiency needs in order to deliver optimal dividends to its targeted audience. Given the fact that resources are relatively scarce compared to the innumerable needs, businessmen, economists, administrators among other leaders reckon that every proposals needs the equity-efficiency balance in order for set goals and objectives to be achieved. This paper seeks to describe the role of equity and efficiency trade off in proposals.
Most of preference share issued by company are cumulative preference share, which means that all the arrear of dividend must be paid to preference share holder before paying any dividend to equity shareholders. This is company liabilities to pay arrear of dividend which increase financial burden of company.
The ratios returns on investment (ROI) and return on equity (ROE) are two of the most popular measure of profitability of a company and, along with the P/E ratio, have the most significant value of any of the ratios. The DuPont Model expands on the ROI calculation by inserting sales and it's relationship to the companies' generation of profits and utilization of assets into the calculation. Additional profitability ratios include the price earnings ratio (P/E), the dividend payout and the dividend yield. The price earnings ratio helps to indicate to investor how expensive the shares of common stock of a firm are. Dividend yield is part of the stockholders ROI and is represented by the annual cash dividend. Dividend yields have historically been between 3% to 6% for common stock and 5% to 8% for preferred stock. Dividend payout ratio shows the proportion of the earnings paid to common shareholders. Dividend payout for manufacturing companies range from 30% to 50%, but can vary widely.
standards, catch up with the trends and produce tax revenues. The importance of equity investors
Changes in dividend provide a signal to the market regarding the expected future performance of the company’
6. The availability of sufficient finance with a concern will help the concern to offer fair return on investment to shareholders.