Abstract This paper explains that investors in the stock market keep track of a variety of measures and benchmarks for determining value and for choosing what stock to buy and when to sell. The author notes that investors can gain value not merely from selling their stock but from earning dividends. The paper relates that the traditional fundamental strategy is to think of oneself not as a purchaser of shares of stock, but as a purchaser of companies.
From the Paper "Investors in the stock market keep track of a variety of measures and benchmarks for determining value and for choosing what stock to buy and when to sell. Investors can gain value not merely from selling their stock but from earning dividends, and this raises the question of what may be the relationship between stock price and dividends paid. Jeremy J. Siegel notes that the price of stock is like any other financial asset in that it "equals the present value of the expected stream of future cash payments to the owner," which themselves are uncertain and are "subject to the earnings of the firm": The uncertainty contrasts sharply with cash payments to bondholders, the value of which is fixed by contractual obligation."
Abstract In this article, the writer notes that stock buy-backs and one-time special dividends have accounted for sixty-three percent of total dividends of companies in the United Kingdom since 2003. The writer notes that ordinary dividend growth has failed to keep pace with earnings growth in the United Kingdom as well as the rest of Europe. The writer discusses that while one would not expect this to be necessarily bad news for the investor, European companies have discovered that their buy-back and special dividend preferences in recent years have failed to boost companies' share prices. As a result, they are now turning back to increasing dividends as the preferred way to return capital to investors This paper discuses the advantages and disadvantages of stock buybacks and dividends so that stockholders can make more informed investment decisions.
Outline:
Introduction
Stock Buybacks
Stock Buyback Advantages
Stock Buyback Disadvantages
Dividends Advantages of Dividends Disadvantages of Dividends Recommendations
From the Paper "Stock buybacks improve a firm's financial ratio. Although a stock buyback reduces cash, return on assets increases because the cash component of assets on the balance sheet is reduced. Return on equity increases because there is less outstanding equity. The buyback also helps to improve the company's price-earnings ratio due to the reduction in outstanding share. All of these metrics, particularly the price-earnings ratio, are considered important metrics to judge investment in a company and their improved positions due to the stock buyback may lead to additional stock demand/appreciation. In addition, stock buybacks send a strong signal to the market that a firm's management believes the shares are undervalued."
Abstract The paper discusses how dividends are often viewed as a measure of a company's financial and operational stability, with dividend growth an indication of success and dividend decline an indication of financial trouble. The paper then explains that in as much as dividend policy is viewed in certain ways by the market, for management it is viewed as a way to send signals to the market. The paper looks at the reasons why a company would not pay dividends and discusses the different ways in which a company can pay out a dividend.
From the Paper "Companies pay out dividends for a few different reasons. The first is that the income stream helps to attract investors. Theoretically, the value of a company's stock is the net present value of all future cash flows, and dividends are those cash flows. In practice, investors also seek capital gains, but the income stream from dividends remains attractive in that it provides a degree of certainty with regards to the future cash flows.
"The degree of certainty is provided by the fact that dividends are often viewed as a measure of a company's financial and operational stability. A company typically only decides to pay dividends once it achieves stability. Moreover, once a dividend is set, companies are reticent to decrease that dividend because such a move will cause the stock value to fall, reducing the firm's attractiveness to investors. So not only does the presence of a dividend indicate a degree of stability, but dividend growth does as well; and a decline in dividends is viewed as being indicative of financial trouble."
Abstract This paper explains that, when the corporation makes a profit then they have to pay taxes on the profit that it earn, then this profit is distributed as dividends and there is a second tax at the time of this distribution. The author points out that companies regularly paying high dividends usually are associated with stable and high earning companies; however, it could be a trick by a company, which is not performing well, to make its share price appear to deserve higher ratings based on the dividend that it is paying. The paper relates that the process of finding out dividend yield for a publicly traded company requires knowing the shareholders' cash dividends and the price of the share on that date.
From the Paper "Another return to stockholders is suggested through share purchases and this is seen not to help the long term stock holders at all. When the company pays to the stockholders an amount more than the book value of the share, they are actually reducing the book value by that much. This is against the general purpose of the management of a company which should increase equity of shareholders at all times, buybacks at prices greater than book value does not achieve it. In the market situation of today, the shares of very few companies are sold at prices below the book value, and even when they do, the company itself may be financially very weak to conduct such a program."
Abstract This paper discusses the efficient market theory, the Modigliani-Miller (MM) cost of capital argument (and its relevance to dividend policy) and the clientele effect. Dividend policy and the clientele effect should properly be seen as specific topics within the broader realm of modern finance theory. The reason for this, quite simply, is that these concepts are best understood when placed within a more complete and general theoretical framework - and modern finance has provided just such a framework: the efficient market theory. This theory provides a comprehensive and unifying explanation of the workings of the market and by virtue of its stature, it affects virtually all aspects and interpretations of finance today. With this in mind, the departure point for this paper is an explanation of the theory of efficient markets. Then, having provided this ?foundation,? the two concepts of dividends and clientele effect are thoroughly analyzed and their validity more accurately judged. Only by placing these concepts within a larger theoretical framework can the reader appreciate all the implications which arise.
From the Paper "However, the authors of this theory acknowledge that this only applies in a perfect world, and here is where academic theory like the efficient market needs to be modified to reflect the real world. In reality there are a number of imperfections which could affect dividend policy and they can be roughly divided into three categories (Campbell and Gray). The first set can be grouped and labled as those factors arguing against high divident payout. These include personal taxes (where "dividends are taxed, but capital gains are deferred"), transaction costs (which result from reinvesting the cash), as well as the particular firm's financing costs."
Analyzes pros and cons of investing in publicly held firms which pay or do not pay dividends, types of dividends, preferred stock, common shares and risks.
1,800 words (approx. 7.2 pages), 4 sources, 1999, $ 63.95
Abstract There is a certain category of investor for whom the only buying requirement is that a stock pay good and regular dividends
From the Paper "SHOULD PUBLICLY HELD CORPORATIONS PAY DIVIDENDS
Definitions
In the following discussion, the term "dividend" shall be defined and used as follows:
* It is a "voluntary" payment that a company makes to its investors on its outstanding shares.
* It can be made on two types of stock -- common and preferred.
* Dividends are paid from corporate funds called "retained earnings and the amount is set by a company's "dividend policy."
Discussion
There is a certain category of investor for whom the only buying requirement is that a stock pay good and regular dividends ..."
Abstract This paper talks about dividend growth models, in particular the Gordon Growth model and the assumptions that one needs to take in the calculations. The paper includes the characteristics and limitations of dividend growth models and talks about CAPM, or the capital asset pricing model, which is based on three main parameters: the risk - free rate, the stock's beta coefficient and the expected rate of return for the market as a whole, used to calculate the market risk premium. The author compares the two models and explains why the modern portfolio theory is base on CAPM notions.
From the Paper "On the other hand, the CAPM is an easy to use and implement model, based on three main parameters: the risk - free rate, the stock's beta coefficient and the expected rate of return for the market as a whole, used to calculate the market risk premium. The model has a large applicability, mainly because it does not use dividend estimates for the future and thus works for organizations that do not pay regular dividends, but also because information on the three variables mentioned are usually public and thus one does not need to make additional estimates on the variables used. "
Tags:dividend growth models. growth rates, Modern Portfolio Theory
Abstract The paper provides an introduction to the McDonald's company and examines McDonald's shares, equity ratio, shareholders, dividend policy debt-to-equity ratio and the company's amount of debt. The paper includes tables and a graph as an appendix to the paper.
Outline:
Introduction
Capital Structure
From the Paper "McDonald's is the world's most famous fast-food chain. It operates and franchises McDonald'srestaurants, which offer various items of fast-food, soft drinks and other beverages. Approximately 70% of McDonald's restaurants are operated by independent franchisors. The number of restaurants in the U.S. has reached saturation and most new McDonald's are now being opened in Europe, Middle East and Asia.
"As of August 2007, McDonald's operated approximately 31.045 restaurants in 118 countries. The company itself employs around 465.000 full-time workers. McDonald's also owns Boston Market restaurant chain and moreover has a minority interest in the Pret-A-Manger, an English coffee and sandwich shop."
Abstract This paper discusses stocks. It defines stock dividends and gives an example of stock dividends in a fictitious company. It then discusses stock splits and gives an example of a situation involving stock splits. The paper then compares stock dividends to stock splits and it discusses how a company would decide whether it wants to use a stock dividend or a stock split.
From the Paper "Stock dividends are normally paid in common shares, and are used instead of a cash dividend to pay the stockholders. Therefore, if the stockholder owned hundred shares of a company that had declared a 1 % stock dividend, then it would mean that the stockholder would receive one more share of stock from the newly formed reserves of the company. A company that wished to tighten its financial belt would choose the option of stock dividends instead of cash dividends, because of the simple fact that this would help to conserve cash, while at the same time allowing its shareholders to benefit from its share holdings and earnings. A stock split, which is nothing but an increase in the company's outstanding common stock, means that the company's market price per share would be adjusted. (Equities: stock splits and dividends)"
Abstract A brief company history and an overview of the valuation analysis are presented prior to the presentation of the valuation models and results. Five common stock valuation models are applied in developing a reasoned valuation of DuPont's common stock. These models are the constant growth dividend model, the variable growth dividend discount model, the price/earnings (P/R) multiple model, the constant dividend model and the total yield model. The concluding discussion evaluates the valuation models and considers the implications for the company of the reasoned valuation of the company's common stock.
From the Paper "Variable Growth Dividend Discount Model. The valuation of a common stock through the application of the variable growth dividend discount model is a three-step process. The first step involves finding the present value of the dividends expected to be paid on the common stock in the initial growth period. The second step involves finding the discounted value of the common stock at the end of the initial growth period. The third step involves adding together the two present value amounts to determine the present value of the common stock."
Abstract This paper discusses growth stocks verses dividend stocks and looks at why the market trend is toward investing in dividend stocks. The paper also explains why there has recently been an increase in criticism of growth stocks. Additionally, the paper describes the logic behind the investment in growth stocks and their typical expected growth, as well as provides an explanation of dividend stocks.
From the Paper "There is some argument made that the emphasis on growth stocks and growth investing strategies over the last 20 years has been due to the increased emphasis on speculative trading spearheaded by various hedge funds. Hedge funds and similar minded investors seek growth stocks that will increase in value rapidly over the short term with the expectation that they will dump the stock as soon as a cost justification is reached (Murphy). That said, none would argue that a renewed emphasis on dividend stocks would return some much needed stability to the stock markets and allow for wealth creation based on sound business strategies and long-term strategic decisions of the companies being invested in. There will always be companies in the markets that exhibit rapid earnings growth but the emphasis should be on stable expansion rather than on a universal drive to expand earnings across all public companies in order to please investors. This type of mindset is both self-defeating and unsustainable."
Abstract This paper provides a financial analysis of both General Mills and Kellogg's. It provides an overview of each company and then discusses their financial ratios. It looks at their corporate valuations and their capital management strategies. The paper finally analyzes their dividend policies and how these affect the company as a whole. The paper concludes by briefly comparing the companies' success.
Table of Contents:
Overview
Financial Ratios
Profitability
Return on Assets
Capitalization/Leverage
Market Valuation Ratio
Corporate Valuations
Capital Management Strategies
Dividend Policies
Conclusion
From the Paper "The markets in the most developed nations have been shifting to a more health conscious diet and both General Mills and Kellogg have responded to this shift by introducing more healthy products. For example Kellogg has introduced an entire product line, the Start Smart Healthy Heart, that addresses this growing market demand for healthier food products ("Boyle"). Additionally, both companies have benefited from emerging and expanding markets in China and India where the demand for their products is expected to someday rival the demand in their home market. Kellogg has an edge over General Mills in terms of brand awareness and identity but unless Kellogg can gain control of its debt profile General Mills may be able to out spend Kellogg into the number one position."
Abstract This paper explains that Keynesian economics would not be so optimistic regarding Bush's dividend tax cut proposal primarily because of their assumption that investment spending is driven more by expectations of future profits that are difficult to forecast. The author believes that the Bush tax plan essentially agrees with Keynes regarding the important role of consumer demand in stimulating the economy. The paper points out that Keynes and Bush radically differ on which category of consumers should receive the benefits of the tax cut: Bush is clearly placing more money in the hands of the wealthy.
From the Paper "Keynes disagreed with supply-side methods for promoting vast degrees of income inequality. Instead, shifting income from high savers to high spenders, Keynes argued, would increase investment since firms would have more reason to add increased production capacity. Keynesians advocate using "automatic stabilizers" to counteract alleged instability in the economy. Keynesians argue that progressive income taxes and welfare payments counter variations in aggregate demand. Progressive income taxes and Welfare transfer income from upper income households to lower income households. Since upper income households save more of their income and low-income households consume more of their income, these practices keep aggregate saving low and aggregate consumption high."
Abstract This paper examines how junk bonds are a consequence of the growing trend of many companies to attract value to their bonds through false propaganda and enticing dividends. It looks at how, although they carry a definite amount of risk associated with them, if invested wisely and prudently, they can also return profits that will be many time higher that the "safer" bonds. It also shows how experts believe that stock market crashes and scams, which are often attributed to the junk bonds, are, in fact, due to the investor's lack of concern for risk in the mad rush to make money.
From the Paper "The concept of junk bonds becomes relevant when we consider the inherent risk that the share market offers to the customer. According to financial statutes, every bond has what is called as the default risk associated with it. When an issuer of the bond is not able to pay timely dividends to the shareholders, there arises a situation where the company is said to be in default. The bonds that are issued by the US government or federal institutions are said to be relatively free of default risk since the government guarantees it and so the investor can be assured that his money is safe. On the contrary, for the shares of non-federal agencies or private companies, the inherent risk is gauged by what is known as credit ratings, which are issued by independent and competent companies."
Abstract This paper examines the role of financial management, which is to choose a correct financial mix that gets a return as per the current cost of money and is also commensurate with the type of assets that the financing has been used for. Differing options are analyzed in order to determine the method for getting the best yield. Various theories are discussed in order to reach the conclusion as to which financial methods are best applicable to businesses.
Introduction
Analysis
Investment in Firms
Miller-Modigliani Theorem
Impact of Taxes
Impacts of Bankruptcy
Dividend Signaling
Clientele Effect
Conclusion
Bibliography
From the Paper "All stockholders in a business expect to earn money from the business and this is given in the form of returns and these are dividends and stock buybacks. The method to be used depends on the preferences and types of stockholders who have invested in the business. The main aim in any business is always to achieve the highest possible returns. One of the best ways of making money for the shareholders is to have a good amount of debt. This happens as the company management has only got to makes fixed payment for debt. These payments are composed of the repayment of the debt and the concerned interest. There is the greatest requirement to pay these in time, as if these are not paid, the stockholder may end up loosing the business. The origin of debt can be from various methods and for small private businesses comes from bank loans. For large organizations whose shares are publicly traded, it comes from bonds. It should be remembered that all interest bearing liabilities, both of the short term variety as well as the long term variety are in the category of debt. (Corporate Finance: Lecture Note Packet 2)"
