CHAPTER 22 – Dividend Policy22 - 1 Dividend Policy What is It? Dividend Policy refers to the...

CHAPTER 22 – Dividend Policy 22 - 1

Dividend PolicyDividend PolicyWhat is It?What is It?

• Dividend Policy refers to the explicit or Dividend Policy refers to the explicit or implicit decision of the Board of Directors implicit decision of the Board of Directors regarding the amount of residual earnings regarding the amount of residual earnings (past or present) that should be distributed to (past or present) that should be distributed to the shareholders of the corporation.the shareholders of the corporation.– This decision is considered a This decision is considered a financing decisionfinancing decision

because the profits of the corporation are an because the profits of the corporation are an important source of financing available to the firm. important source of financing available to the firm.


ObjectivesObjectives

• Study the relationship between a firm’s Study the relationship between a firm’s dividend policy and the market value of its dividend policy and the market value of its common stock.common stock.

• Review types of dividend policies followed by Review types of dividend policies followed by firms.firms.


Dividend PaymentsDividend PaymentsMechanics of Cash Dividend PaymentsMechanics of Cash Dividend Payments

Declaration DateDeclaration Date – this is the date on which the Board of Directors meet and declare the dividend. In their this is the date on which the Board of Directors meet and declare the dividend. In their

resolution the Board will set the resolution the Board will set the date of recorddate of record, the , the date of paymentdate of payment and the and the amount of the amount of the dividenddividend for each share class. for each share class.

– when CARRIED, this resolution makes the dividend a current liability for the firm.when CARRIED, this resolution makes the dividend a current liability for the firm.

Date of RecordDate of Record – is the date on which the shareholders register is closed after the trading day and all those is the date on which the shareholders register is closed after the trading day and all those

who are listed will receive the dividend.who are listed will receive the dividend.

Ex dividend DateEx dividend Date – is the date that the value of the firm’s common shares will reflect the dividend payment (ie. is the date that the value of the firm’s common shares will reflect the dividend payment (ie.

fall in value)fall in value)– ‘‘ex’ means without.ex’ means without.– At the start of trading on the ex-dividend date, the share price will normally open for trading At the start of trading on the ex-dividend date, the share price will normally open for trading

at the previous days close, less the value of the dividend per share. This reflects the fact at the previous days close, less the value of the dividend per share. This reflects the fact that purchasers of the stock on the ex-dividend date and beyond WILL NOT receive the that purchasers of the stock on the ex-dividend date and beyond WILL NOT receive the declared dividend.declared dividend.

Date of PaymentDate of Payment – is the date the cheques for the dividend are mailed out to the shareholders.is the date the cheques for the dividend are mailed out to the shareholders.


Declaration Date

Date ofRecord

Date ofPayment

Ex Dividend Date is determined by the Date of Record.The market value of the sharesdrops by the value of the dividendper share on market opening…comparedto the previous day’s close.

The Board Meetsand passes themotion to createthe dividend

2 business days prior to the Date of Record

Dividend Declaration Time LineDividend Declaration Time Line


Dividend PolicyDividend PolicyDividends, Shareholders and the Board of DirectorsDividends, Shareholders and the Board of Directors

• There is no legal obligation for firms to pay dividends There is no legal obligation for firms to pay dividends to common shareholdersto common shareholders

• Shareholders cannot force a Board of Directors to Shareholders cannot force a Board of Directors to declare a dividend, and courts will not interfere with declare a dividend, and courts will not interfere with the BOD’s right to make the dividend decision the BOD’s right to make the dividend decision because:because:– Board members are jointly and severally liable for any damages Board members are jointly and severally liable for any damages

they may causethey may cause– Board members are constrained by legal rules affecting Board members are constrained by legal rules affecting

dividends including:dividends including:• Not paying dividends out of capitalNot paying dividends out of capital• Not paying dividends when that decision could cause the firm to Not paying dividends when that decision could cause the firm to

become insolventbecome insolvent• Not paying dividends in contravention of contractual commitments Not paying dividends in contravention of contractual commitments

(such as debt covenant agreements)(such as debt covenant agreements)


Types of DividendsTypes of Dividends

• Dividends are a permanent distribution of residual Dividends are a permanent distribution of residual earnings/property of the corporation to its owners.earnings/property of the corporation to its owners.

• Dividends can be in the form of:Dividends can be in the form of:– CashCash– Additional Shares of Stock (stock dividend)Additional Shares of Stock (stock dividend)– PropertyProperty

• If a firm is dissolved, at the end of the process, a final If a firm is dissolved, at the end of the process, a final dividend of any residual amount is made to the dividend of any residual amount is made to the shareholders – this is known as a shareholders – this is known as a liquidating dividendliquidating dividend..


Dividend PaymentsDividend PaymentsDividend Reinvestment Plans (DRIPs)Dividend Reinvestment Plans (DRIPs)

• Involve shareholders deciding to use the cash Involve shareholders deciding to use the cash dividend proceeds to buy more shares of the firmdividend proceeds to buy more shares of the firm– DRIPs will buy as many shares as the cash dividend allows with DRIPs will buy as many shares as the cash dividend allows with

the residual deposited as cashthe residual deposited as cash– Leads to shareholders owning odd lots (less than 100 shares)Leads to shareholders owning odd lots (less than 100 shares)

• Firms are able to raise additional common stock Firms are able to raise additional common stock capital continuously at no cost and fosters an on-capital continuously at no cost and fosters an on-going relationship with shareholders.going relationship with shareholders.


Dividend PaymentsDividend PaymentsStock DividendsStock Dividends

• Stock dividends simply amount to distribution of Stock dividends simply amount to distribution of additional shares to existing shareholdersadditional shares to existing shareholders

• They represent nothing more than recapitalization They represent nothing more than recapitalization of earnings of the company. (that is, the amount of earnings of the company. (that is, the amount of the stock dividend is transferred from the R/E of the stock dividend is transferred from the R/E account to the common share account.account to the common share account.

• Because of the Because of the capital impairment rule capital impairment rule stock stock dividends reduce the firm’s ability to pay dividends reduce the firm’s ability to pay dividends in the future.dividends in the future.


Dividend PaymentsDividend PaymentsStock DividendsStock Dividends

ImplicationsImplications– reduction in the R/E accountreduction in the R/E account– reduced capacity to pay future dividendsreduced capacity to pay future dividends– proportionate share ownership remains unchangedproportionate share ownership remains unchanged– shareholder’s wealth (theoretically) is unaffectedshareholder’s wealth (theoretically) is unaffected

Effect on the CompanyEffect on the Company– conserves cashconserves cash– serves to lower the market value of firm’s stock modestlyserves to lower the market value of firm’s stock modestly– promotes wider distribution of shares to the extent that current owners divest themselves of promotes wider distribution of shares to the extent that current owners divest themselves of

shares...because they have moreshares...because they have more– adjusts the capital accountsadjusts the capital accounts– dilutes EPSdilutes EPS

Effect on ShareholdersEffect on Shareholders– proportion of ownership remains unchangedproportion of ownership remains unchanged– total value of holdings remains unchangedtotal value of holdings remains unchanged– if former DPS is maintained, this really represents an increased dividend payoutif former DPS is maintained, this really represents an increased dividend payout


Dividend PaymentsDividend PaymentsStock Dividend ExampleStock Dividend Example

ABC CompanyABC CompanyEquity AccountsEquity Accounts

as at February xx, 20x9as at February xx, 20x9Common stock (215,000)Common stock (215,000) $5,000,000$5,000,000Retained earningsRetained earnings 20,000,000 20,000,000Net WorthNet Worth $25,000,000$25,000,000

The company, on March 1, 20x9 declares a 10 percent stock dividend when the The company, on March 1, 20x9 declares a 10 percent stock dividend when the current market price for the stock is $40.00 per share.current market price for the stock is $40.00 per share.

This stock dividend will increase the number of shares outstanding by 10 percent. This stock dividend will increase the number of shares outstanding by 10 percent. This will mean issuing 21,500 shares. The value of the shares is:This will mean issuing 21,500 shares. The value of the shares is:

$40.00 (21,500) = $860,000$40.00 (21,500) = $860,000

This stock dividend will result in $860,000 being transferred from the retained This stock dividend will result in $860,000 being transferred from the retained earnings account to the common stock account:earnings account to the common stock account:

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Dividend PaymentsDividend PaymentsStock Dividend ExampleStock Dividend Example

After the stock dividend:After the stock dividend:

ABC CompanyABC CompanyEquity AccountsEquity Accounts

as at March 1, 20x9as at March 1, 20x9

Common stock (236,500)Common stock (236,500) $5,860,000$5,860,000Retained earningsRetained earnings 19,140,00019,140,000Net worthNet worth $25,000,000$25,000,000

The market price of the stock will be affected by the stock dividend:The market price of the stock will be affected by the stock dividend:

New Share Price = Old Price/ (1.1) = $40.00/1.1 = $36.36New Share Price = Old Price/ (1.1) = $40.00/1.1 = $36.36

The individual shareholder’s wealth will remain unchanged.The individual shareholder’s wealth will remain unchanged.


Dividend PaymentsDividend PaymentsStock SplitsStock Splits

• Although there is no theoretical proof, there is some Although there is no theoretical proof, there is some who believe that an optimal price range exists for a who believe that an optimal price range exists for a company’s common shares.company’s common shares.

• It is generally felt that there is greater demand for It is generally felt that there is greater demand for shares of companies that are traded in the $40 - $80 shares of companies that are traded in the $40 - $80 dollar range.dollar range.

• The purpose of a stock split is to decrease share price.The purpose of a stock split is to decrease share price.• The result is:The result is:

– increase in the number of share outstandingincrease in the number of share outstanding– theoretically, no change in shareholder wealththeoretically, no change in shareholder wealth

• Reasons for use:Reasons for use:– better share price trading rangebetter share price trading range– psychological appeal (signalling affect)psychological appeal (signalling affect)


Dividend PaymentsDividend PaymentsStock Split EffectsStock Split Effects

• shareholders wealth should remain unaffected:shareholders wealth should remain unaffected:

Original Holdings: (100 shares @ $150/share) = Original Holdings: (100 shares @ $150/share) = $15,000$15,000

After a 4 for 1 split: (400 shares @ $37.50/share) = After a 4 for 1 split: (400 shares @ $37.50/share) = $15,000$15,000

• the above will hold true if there is no the above will hold true if there is no psychological appeal to the stock split. psychological appeal to the stock split.

• There is some evidence that the share price of There is some evidence that the share price of companies which split stock is more bouyant companies which split stock is more bouyant because of a positive signal being transferred to because of a positive signal being transferred to the market by this action.the market by this action.


-- lowers stock price slightlylowers stock price slightly -- large drop in stock pricelarge drop in stock price

-- little psychological appeallittle psychological appeal -- much stronger potentialmuch stronger potentialsignalling effectsignalling effect

-- recapitalization of earningsrecapitalization of earnings -- no recapitalizationno recapitalization

-- no change in proportionalno change in proportional -- samesame

ownershipownership

-- odd lots createdodd lots created -- odd lots rareodd lots rare

-- theoretically, no value totheoretically, no value to -- samesame

the investorthe investor

Stock Dividends versus Stock SplitsStock Dividends versus Stock Splits

Stock Dividends Stock Splits

Modigliani and Miller’s Dividend Modigliani and Miller’s Dividend Irrelevance TheoremIrrelevance Theorem

M&M, Dividends and Firm ValueM&M, Dividends and Firm Value


M&M’s Dividend Irrelevance TheoremM&M’s Dividend Irrelevance TheoremAssumptionsAssumptions

• No TaxesNo Taxes• Perfect capital marketsPerfect capital markets

– large number of individual buyers and sellerslarge number of individual buyers and sellers– costless informationcostless information– no transaction costsno transaction costs

• All firms maximize valueAll firms maximize value• There is no debtThere is no debt


Miller-Modigliani (MM) ’s Dividend Miller-Modigliani (MM) ’s Dividend Irrelevance Irrelevance TheoremTheorem

• Ass.: taxes=transaction costs=0 Ass.: taxes=transaction costs=0 andand• Firm’s investment policy is Firm’s investment policy is unaffectedunaffected by by

dividend policydividend policy

• FirmFirmvaluevalue (0 div.) = Firm (0 div.) = Firmvaluevalue ( ( div.) HOW? div.) HOW?

– S/Hs receive returns in 2 forms:S/Hs receive returns in 2 forms:• Dividends & Stock Price appreciation (CGs)Dividends & Stock Price appreciation (CGs)

dividends, dividends, the CG and the CG and vice-versavice-versa– Overall S/H’s returns are Overall S/H’s returns are identicalidentical

• Indifferent to dividend policyIndifferent to dividend policy


M&M’s Dividend Irrelevance TheoremM&M’s Dividend Irrelevance TheoremHomemade DividendsHomemade Dividends

• Shareholders can buy or sell shares in an Shareholders can buy or sell shares in an underlying company to create their own cash underlying company to create their own cash flow pattern.flow pattern.– They don’t need management declare a cash They don’t need management declare a cash

dividend, they can create their own.dividend, they can create their own.

Conclusion: under the assumptions of M&M’s model, Conclusion: under the assumptions of M&M’s model, the investor is indifferent to the firm’s dividend policy.the investor is indifferent to the firm’s dividend policy.


Residual Dividend TheoryResidual Dividend Theory

• Flotation costs cause outside equity to be Flotation costs cause outside equity to be more expensive than inside equity, i.e., more expensive than inside equity, i.e., retained earnings.retained earnings.

• Financing investments internally (and Financing investments internally (and decreasing dividends) instead of issuing new decreasing dividends) instead of issuing new stock may be favored. stock may be favored.

• Residual dividend theory says that a dividend Residual dividend theory says that a dividend would be paid only when internally generated would be paid only when internally generated funds remain after financing the firm's funds remain after financing the firm's investmentsinvestments


Expectations TheoryExpectations Theory

• As the time approaches for management to As the time approaches for management to announce the amount of the next dividend, announce the amount of the next dividend, investors form expectations as to how much investors form expectations as to how much the dividend will be. The investor then the dividend will be. The investor then compares the actual dividend announced with compares the actual dividend announced with the expected dividend. the expected dividend.

• If the amount of the dividend is as expected, If the amount of the dividend is as expected, even if it represents an increase from prior even if it represents an increase from prior years, the market price of the stock will remain years, the market price of the stock will remain unchanged. However, if the dividend is higher unchanged. However, if the dividend is higher or lower than expected, the investors will or lower than expected, the investors will reassess their perceptions about the firm and reassess their perceptions about the firm and the value of the stock.the value of the stock.


The “Bird-in-the-Hand” ArgumentThe “Bird-in-the-Hand” ArgumentM&M’s Assumptions RelaxedM&M’s Assumptions Relaxed

• Risk is a real world factor.Risk is a real world factor.• Firm’s that reinvest free cash flow, put that Firm’s that reinvest free cash flow, put that

money at risk – there is no certainty of money at risk – there is no certainty of investment outcome – those forfeit dividends investment outcome – those forfeit dividends that are reinvested…could be lost!that are reinvested…could be lost!

• Remember the two-stage DDM?Remember the two-stage DDM?



• Remember the two-stage DDM?Remember the two-stage DDM?

– The first term is the present value of existing opportunities The first term is the present value of existing opportunities (PVEO)(PVEO)

– The second term is the present value of growth opportunities The second term is the present value of growth opportunities (PVGO)(PVGO)

– These forecast returns face risks of new market entrants to These forecast returns face risks of new market entrants to compete for the excess profits forecast in emerging opportunities compete for the excess profits forecast in emerging opportunities making PVGO extremely vulnerable.making PVGO extremely vulnerable.

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• Myron Gordon suggests that dividends are Myron Gordon suggests that dividends are more stable than capital gains and are more stable than capital gains and are therefore more highly valued by investors.therefore more highly valued by investors.

• This implies that investors perceive non-This implies that investors perceive non-dividend paying firms to be riskier and apply dividend paying firms to be riskier and apply a higher discount rate to value them causing a higher discount rate to value them causing the share price to fall.the share price to fall.

– M&M argue that dividends and capital gains are M&M argue that dividends and capital gains are perfect substitutesperfect substitutes


The “Bird-in-the-Hand” ArgumentThe “Bird-in-the-Hand” ArgumentM&M versus Gordon’s Bird in the Hand TheoryM&M versus Gordon’s Bird in the Hand Theory

Conclusions:Conclusions:– Firms cannot change underlying operational Firms cannot change underlying operational

characteristics by changing the dividendcharacteristics by changing the dividend– The dividend should reflect the firm’s operations The dividend should reflect the firm’s operations

through the residual value of dividendsthrough the residual value of dividends


Some Practical ConsiderationsSome Practical Considerations

• Legal restrictions: Legal restrictions: – A corporation may not pay a dividendA corporation may not pay a dividend

• If the firm's liabilities exceed its assets.If the firm's liabilities exceed its assets.• If the amount of the dividend exceeds the accumulated If the amount of the dividend exceeds the accumulated

profits (retained earnings).profits (retained earnings).• If the dividend is being paid from capital invested in the firm.If the dividend is being paid from capital invested in the firm.

– Debt holders and Preferred stockholders may impose restrictive Debt holders and Preferred stockholders may impose restrictive provisions on management, such as common dividends not provisions on management, such as common dividends not being paid from earnings prior to the payment of interest or being paid from earnings prior to the payment of interest or preferred dividends.preferred dividends.



• Liquidity Position:Liquidity Position:– The amount of a firm's retained earnings and its cash position The amount of a firm's retained earnings and its cash position

are seldom the same. Thus, the company must have adequate are seldom the same. Thus, the company must have adequate cash available as well as retained earnings to pay dividends.cash available as well as retained earnings to pay dividends.

• Absence or lack of other sources of financing:Absence or lack of other sources of financing: – All firms do not have equal access to the capital markets. All firms do not have equal access to the capital markets.

Consequently, companies with limited financial resources may Consequently, companies with limited financial resources may rely more heavily on internally generated funds.rely more heavily on internally generated funds.

• Earning predictability:Earning predictability: – A firm that has a stable earnings trend will generally pay a larger A firm that has a stable earnings trend will generally pay a larger

portion of its earnings in dividends. If earnings fluctuate portion of its earnings in dividends. If earnings fluctuate significantly, a larger amount of the profits may be retained to significantly, a larger amount of the profits may be retained to ensure that enough money is available for investment projects ensure that enough money is available for investment projects when needed.when needed.



• Ownership control:Ownership control:

– For many small firms, and certain large ones, For many small firms, and certain large ones, maintaining the controlling vote is very important. maintaining the controlling vote is very important. These owners would prefer the use of debt and These owners would prefer the use of debt and retained profits to finance new investments rather retained profits to finance new investments rather than issue new stock.than issue new stock.

• Inflation:Inflation:

– Because of inflation, the cost of replacing equipment Because of inflation, the cost of replacing equipment has increased substantially. Depreciation funds tend has increased substantially. Depreciation funds tend to become insufficient. Hence, greater profit retention to become insufficient. Hence, greater profit retention may be required.may be required.


Share RepurchasesShare Repurchases

• Simply another form of payout policy.Simply another form of payout policy.• An alternative to cash dividend where the An alternative to cash dividend where the

objective is to increase the price per share objective is to increase the price per share rather than paying a dividend.rather than paying a dividend.

• Since there are rules against improper Since there are rules against improper accumulation of funds, firms adopt a policy of accumulation of funds, firms adopt a policy of large infrequent share repurchase programs.large infrequent share repurchase programs.


reasons for use:reasons for use:– Offsetting the exercise of executive stock optionsOffsetting the exercise of executive stock options– Leveraged recapitalizationsLeveraged recapitalizations– Information or signalling effectsInformation or signalling effects– Repurchase dissident sharesRepurchase dissident shares– Removing cash without generating expectations for future Removing cash without generating expectations for future

distributionsdistributions– Take the firm private.Take the firm private.

Share RepurchasesShare Repurchases


• they are usually done on an irregular basis, so a they are usually done on an irregular basis, so a shareholder cannot depend on income from this source.shareholder cannot depend on income from this source.

• there may be some agency problems - if managers have there may be some agency problems - if managers have inside information, they are purchasing from shareholders inside information, they are purchasing from shareholders at a price less than the intrinsic value of the shares.at a price less than the intrinsic value of the shares.

Disadvantages of Share RepurchasesDisadvantages of Share Repurchases


• tender offer:tender offer:– this is a formal offer to purchase a given number of shares at a this is a formal offer to purchase a given number of shares at a

given price over current market price.given price over current market price.

• open market purchase:open market purchase:– the purchase of shares through an investment dealer like any the purchase of shares through an investment dealer like any

other investorother investor

– this is not designed for large block purchases.this is not designed for large block purchases.

• private negotiation with major shareholdersprivate negotiation with major shareholders

In any repurchase program, the securities commission In any repurchase program, the securities commission requires disclosure of the event as well as all other requires disclosure of the event as well as all other material information through a prospectus.material information through a prospectus.

Methods of Share RepurchasesMethods of Share Repurchases


• EPS should increase following the repurchase EPS should increase following the repurchase if earnings after-tax remains the sameif earnings after-tax remains the same

• a higher market price per outstanding share a higher market price per outstanding share of common stock should resultof common stock should result

• stockholders not selling their shares back to stockholders not selling their shares back to the firm will enjoy a capital gain if the the firm will enjoy a capital gain if the repurchase increases the stock price.repurchase increases the stock price.

Effects of A Share RepurchaseEffects of A Share Repurchase


• signal positive information about the firm’s future cash signal positive information about the firm’s future cash flowsflows

• used to effect a large-scale change in the firm’s capital used to effect a large-scale change in the firm’s capital structurestructure

• increase investor’s return without creating an increase investor’s return without creating an expectation of higher future cash dividendsexpectation of higher future cash dividends

• reduce future cash dividend requirements or increase reduce future cash dividend requirements or increase cash dividends per share on the remaining shares, cash dividends per share on the remaining shares, without creating a continuing incremental cash drainwithout creating a continuing incremental cash drain

• capital gains treated more favourably than cash capital gains treated more favourably than cash dividends for tax purposes.dividends for tax purposes.

Advantages of Share RepurchasesAdvantages of Share Repurchases


• signal negative information about the firm’s signal negative information about the firm’s future growth and investment opportunitiesfuture growth and investment opportunities

• the provincial securities commission may the provincial securities commission may raise questions about the intentionraise questions about the intention

• share repurchase may not qualify the investor share repurchase may not qualify the investor for a capital gainfor a capital gain

Disadvantages of Share RepurchasesDisadvantages of Share Repurchases


• Is this legal? is it possible to do?Is this legal? is it possible to do?• YesYes

– the firm must have the ability and capacity to borrowthe firm must have the ability and capacity to borrow– the firm must have sufficient retained earnings to allow it the firm must have sufficient retained earnings to allow it

to pay the dividend to pay the dividend – the firm must have sufficient cash on hand to pay the the firm must have sufficient cash on hand to pay the

cash dividendcash dividend– the firm must NOT have agreed to any limitations on the the firm must NOT have agreed to any limitations on the

payment of dividends under the bond indenture.payment of dividends under the bond indenture.

• Why?Why?– A possible answer is to signal to the market that the A possible answer is to signal to the market that the

board is confident about the firm’s ability to sustain cash board is confident about the firm’s ability to sustain cash dividends into the future.dividends into the future.

Borrowing to Pay DividendsBorrowing to Pay Dividends


• The foregoing example illustrates:The foregoing example illustrates:– it is possible for a firm with ‘borrowing capacity’ to borrow funds to it is possible for a firm with ‘borrowing capacity’ to borrow funds to

pay cash dividends.pay cash dividends.

– this is not possible if the lenders insist on restrictive covenants that this is not possible if the lenders insist on restrictive covenants that limit or prevent this from occurring.limit or prevent this from occurring.

– the cash for the dividend must be present in the cash account.the cash for the dividend must be present in the cash account.

– payment of dividends reduces both the cash account on the asset payment of dividends reduces both the cash account on the asset side of the balance sheet as well as the retained earnings account side of the balance sheet as well as the retained earnings account on the ‘claims’ side of the balance sheet.on the ‘claims’ side of the balance sheet.

– in the absence of restrictions, it is possible to transfer wealth from in the absence of restrictions, it is possible to transfer wealth from the bondholders to the stockholders. the bondholders to the stockholders. (Bondholders in this example (Bondholders in this example may have thought their firm would have only a 25% debt ratio….after the may have thought their firm would have only a 25% debt ratio….after the dividend the debt ratio rose to 33% and the equity cusion dropped from dividend the debt ratio rose to 33% and the equity cusion dropped from 75% to 66%.)75% to 66%.)

Borrowing to Pay DividendsBorrowing to Pay DividendsAn ExampleAn Example


Dividend policy summaryDividend policy summary

• No definite conclusion can be reached about the No definite conclusion can be reached about the optimal dividend policyoptimal dividend policy

• Investors in aggregate cannot be shown to uniformly Investors in aggregate cannot be shown to uniformly prefer either high or low dividendsprefer either high or low dividends

• Individual investors, Individual investors, however, have strong dividend however, have strong dividend preferences and will tend to invest in companies preferences and will tend to invest in companies whose dividend policies match their preferenceswhose dividend policies match their preferences

• Regardless of the payout ratio, investors prefer a Regardless of the payout ratio, investors prefer a stable, predictable dividend policystable, predictable dividend policy

Yours SaravananYours Saravanan

Learn A Lot ,Earn A LotLearn A Lot ,Earn A Lot

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