Finance (Ch. 17)

The observable fact that stocks attract particular groups based on dividend yield and the resulting tax effects is known as the ____________________.

Clientele effect

Real-world factors favoring a high dividend payout include:

Desire for current income, corporate investors, tax-exempt investors

A payment made by a firm to its owners from sources other than current or accumulated retained earnings is known as _____________________.

Distribution

_______________ refers to a payment made out of a firm's earnings to its owners, in the form of either cash or stock.

Dividend

____________ is the time pattern of dividend payout.

Dividend policy

Managers are very excited to cut dividends. (T/F)

False

The purchase, by a corporation, of its own shares of stock is known as ____________________.

Stock repurchase

Real-world factors favoring a low dividend payout include:

Taxes, floatation costs, dividend restrictions

A stock repurchase acts much like a cash dividend, but has a significant tax advantage. (T/F)

True

Aggregate dividend and stock repurchases are massive, and they have increased steadily in nominal and real terms over the years. (T/F)

True

Dividends are heavily concerned among a relatively small number of large, mature firms. (T/F)

True

Managers smooth dividends, raising them slowly and incrementally as earnings grow. (T/F)

True

Stock prices react to unanticipated changes in dividends. (T/F)

True

The ____________ is the date on which the dividend checks are mailed.

date of payment

The ____________ is the date by which a holder must be on record to be designated to receive a dividend.

date of record

The date on which the board of directors passes a resolution authorizing payment of a dividend to the shareholders is the ____________ date.

declaration

If looking at floatation costs within an argument, the value of the stock will ___________ if new stock is sold.

decrease

For individual shareholders, ___________________ on dividend income are higher than the tax rates on capital gains.

effective tax rates

The date two business days before the date of record, establishing those individuals entitled to a dividend is known as the _____________ date.

ex-dividend

The ____________________ is the price range between the highest and lowest prices at which a stock is traded.

trading range

Pros of Paying Dividends

1) Cash dividends can underscore good results and provide support to the stock price. 2) Dividends may attract institutional investors who prefer some return in the form of dividends. A mix of institutional and individual investors may allow a firm to raise capital at lower cost because of the ability of ht firm to reach a wider market. 3) Stock price usually increases with the announcement of a new or increased dividend. 4) Dividends absorb excess cash flow and may reduce agency costs that arise from conflicts between management and shareholders.

Cons of Paying Dividends

1) Dividends are taxed to recipients. 2) Dividends can reduce internal sources of financing. Dividends may force the firm to forgo positive NPV projects or to rely on costly external equity financing. 3) Once established, dividend cuts are hard to make without adversely affecting a firm's stock price.

_______________________ is internally generated cash flow beyond that needed to fund profitable investment activities.

Free cash flow

________________ is the tailored dividend policy created by individual investors who undo corporate dividend policy by reinvesting dividends or selling shares of stock.

Homemade dividend policy

In ________________________, companies purchase back their own stock while not revealing themselves as the buyer.

Open market purchases

A ______________________ is a cash payment made by a firm to its owners in the normal course of business, usually about four time a year.

Regular cash dividend

The common trading unit of 100 shares is called a _____________.

Round lot

The decision to pay a dividend rests in the hands of the _________________________.

board of directors

Stock repurchase is also known as a ________________.

buyback

The _________________ argument states that different groups of investors desire different levels of dividends.

clientele effect

The __________________ is the market's reaction to a change in corporate dividend payout.

information content effect

A _______________________ is a stock dividend is greater than 20 to 25 percent.

large stock dividend

A trading unit of less than 100 shares is called an ___________.

odd-lot

A stock split is conceptually similar to a stock dividend, but it is commonly expressed as a ___________.

ratio

A ______________ is a stock split in which a firm's number of shares outstanding is reduced.

reverse split

A stock dividend of less than 20 to 25 percent is called a _________________.

small stock dividend

A ____________ dividend is similar, but the name usually indicates that this dividend is viewed as a truly unusual or one-time event and won't be repeated.

special

A _________________ is a payment made by a firm to its owners in the form of stock, diluting the value of each share outstanding.

stock dividend

A _______________ is an increase in a firm's shares outstanding without any change in owners' equity.

stock split

With _____________________________, firms repurchase shares from specific individual stockholders.

targeted repurchases

With a ________________, the firm announces to all of its stockholders that it is willing to buy a fixed number of shares at a specific price.

tender offer