Dividends
Dividends
Dividends
Dividend Policy
Forms of Dividend Payments
Cash Dividend - Payment of cash by the firm to
its shareholders.
Share
price
falls
Miller and Modigliani’s (MM) dividend
irrelevance proposition
Target Total
Dividends Net Income equity capital
budget
ratio
Residual Dividend Model
Example:
Dividends Net Income Target
equity capital
Total
ratio budget
Residual Dividend Model
25
Effects of Dividend Policy
• Consider a growth
ROE 20%
firm in which the k 15% Inputs
return on new E1 7.50 p
26
Reminder: The model is only valid if k g
Effects of Dividend Policy
• Consider a declining
ROE 10%
firm in which the k 15% Inputs
return on new E1 7.50 p
27