cash dividends

stock dividends

stock splits

MM

“bird in hand” theory

taxable investors

different classes of investors have differing preferences for dividend income. Those who prefer dividends will tend to invest in higher yielding shares.

Initiating a dividend or increasing a dividend sends a positive signal

reduce the agency conflicts between managers and shareholders

worsening conflicts of interest between shareholders and debtholders

investment opportunities for the company

the volatility expected in its future earnings

financial flexibility, tax considerations

flotation costs

contractual and legal restrictions

double taxation

tax imputation systems

split-rate taxation systems

debt covenants and legal restrictions

stable dividend policy

constant dividend payout ratio policy

residual dividend policy

open market

tender offers occur at a fixed price

at a price range through a Dutch auction

Direct negotiations

EPS

BVPS

Companies can repurchase shares in lieu of increasing cash dividends.

Companies can pay regular cash dividends supplemented by share repurchases.

On the one hand, share repurchases can signal that company officials think their shares are undervalued.

On the other hand, share repurchases could send a negative signal that the company has few positive NPV opportunities.

FCFEE/(dividends repurchases)

dividends/earnings

Excessively high dividend yields may be unsustainable