BBK34133 | Investment Analysis Prepared by Khairul Anuar. L6 – Dividend and Dividend Policy. What is Dividend Policy.
Prepared by KhairulAnuar
L6 – Dividend and Dividend Policy
Date of Record
Ex dividend Date
Date of Payment
x business days prior to the Date of Record
Ex Dividend Date is determined
by the Date of Record.
The market value of the shares
drops by the value of the dividend
per share on market opening…compared
to the previous day’s close.
The Board Meets
and passes the
motion to create
Effect on the Company
Effect on Shareholders
as at February xx, 20x9
Common stock (21,500)$5,000,000
Retained earnings 20,000,000
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.
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:
$40.00 (21,500) = $860,000
This stock dividend will result in $860,000 being transferred from the retained earnings account to the common stock account:
Scenario: Company A: Current earnings=$4.4m,
Current no of shares=1.1 m shares
Current share price = $20
Repurchase = 100,000 shares (0.1 m shares)
= [total earnings] / [# of shares] = $4.4 m / 1.1 m = $4.00
Current P/E ratio
= $20 / $4 = 5X
EPS after repurchase of 100,000 shares
=$4.4 m / 1.0 = $4.40
Expected market price after repurchase:
= [p/e] x [EPSnew]
=  x [$4.40] = $22.00 per share
Agency costs of retaining cash
Overall, as a financial manager, you should consider the following when making payout policy decisions:
Our Company intends to distribute yearly dividends of RM700 million or up to 90% of our normalized PATAMI, whichever is higher.
Dividends will be paid only if approved by our Board out of funds available for such distribution. The actual amount and timing of dividend payments will depend upon our level of cash and retained earnings, results of operations, business prospects, monetization of non-core assets, projected levels of capital expenditure and other investment plans, current and expected obligations and such other matters as our Board may deem relevant.”
Wall Street Journal, Updated Sept. 17, 2013
MicrosoftCorp moved to share more of its cash hoard with shareholders, boosting its quarterly dividend by 22% and renewing a $40 billion authorization to buy back its shares.
Microsoft unveiled a $40 billion share buyback plan and boosted its quarterly dividend by 22%, continuing the shareholder-friendly moves it has pushed in recent years. The announcement Tuesday comes two days before a highly anticipated meeting with financial analysts and follow a series of surprise changes at the software giant, including a plan to seek a successor to Chief Executive Steve Ballmer and a $7 billion deal to buy Nokia Corp.'s 2.19% smartphone business.
Microsoft has raised its dividend eight times since 2004, in announcements that typically come in September. But the latest increase was greater than predicted by some analysts, who see Microsoft's moves to return cash to shareholders as a way to defuse dissatisfaction with the company's share price.