Paying out dividends belongs to the easiest way to communicate financial well-being and shareholder value, since they are sending out a powerful message about future prospects and performances. The willingness, and also the ability of companies to pay out steady dividends and maybe even to increase them, provides the shareholder with valuable information about the company 's fundamentals.
Wherever you are looking for information regarding dividends, you will find statements about their affection on stockholders. But where is the point for the companies? What drives companies to pay out dividends, and why do some companies do so and some do not?
There is the opinion of some financial analysts that a dividend policy is irrelevant
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On top of this set dividend, there is always the possibility for these companies to offer another extra dividend, paid only when income exceeds generally obtained levels.
In the following, we had a closer look at the German company "Porsche" and we tried to find some information about their dividend policy. As the following tables show, there was a steady increase of the paid dividend over the last years which reached a level of 3.34 Euros for the common stocks and of even 3.40 Euros for the preferred stocks in 2003:
In order to find out whether Porsche is using the residual, stability or the hybrid method, we firstly started to examine whether the obviously most probable method, the stability growth policy applied. Therefore, we examined the yearly dividends but could not find any dependence. Now, we calculated the amount of shares necessary to distribute the whole net income under Porsche 's shareholders which led us to the following tables :
For the reason that Porsche did not increase the number of shares in the last years and the dividend payout did not increase constantly, we concluded that Porsche is not using the stability dividend policy. Nevertheless, since Porsche 's dividend strategy is a rising one, we assumed that they are using a mixture of the residual and the stability policy, namely the hybrid strategy. Admittedly, we have to say that their dividends did not increase depending on the level of net income as the next
The dividend policy has grown over the years. This may be so that the company projects itself as a less risky share and thus also gaining investors faith. The investors buy its shares and thus increase its demand. This helps to gives positive signals to the investors signalling that the company is stable and can generate earnings steadily. This hypothesis is gains standing from the dividend hypothesis theory.
When a company decides to pay dividends, it has to be careful on how much it will be given to the shareholders. It is of no use to pay shareholders dividends
George C. Philippatos and William W. Sihler, 'Models of Dividend Policy', Financial Management (Allyn and Bacon), 228-229
When a company generates a profit, management has one of two choices: They can either pay it out to shareholders as a cash dividend, or retain the earnings and reinvest them in the business.
Since the emergence of the so-called irrelevance theorem by Miller and Modigliani (1961), many corporations are puzzled about why some firms pay dividends while others do not. They were the first to study the effect of dividend policy on the market value of firms by assuming that there are no market imperfections. Miller and Modigliani (1961) proposed that divided policy chosen by a firm has no significant relationship in as far as the market valuation of the firm is concerned. They went further to explain that; the shareholders wealth remains unchanged irrespective of how the firm distributes it income because the firms’ value is rather determined by their investment policies and the earning power of its assets. They further stated that the opportunity to earn abnormal returns in the market does not exist, that is, owners are entitled to the normal market returns adjusted for risk.
In practice, dividend policy will be affected by taxes as tax rates for different categories of investors will differ. Also, a firm’s dividend policy is perceived by the financial markets to be a signaling mechanism. A cut back in dividends may signify that the firm perceives tough
By cutting dividends, FPL can react better to future threats. After an initial panic selling triggered by the news shock (FPL never cut its dividend in the past 47 years), investors will process the new information realized that the dividend cut is balanced by an increased growth rate in the future. To justify the HOLD recommendation on the
Because often dividends are perceived as spendable income (some stock holders look at stocks as a source of income as it is easier to get a dividend instead of selling the stocks). Sometimes investment opportunities are low, they reach the limit of their marketplace, so companies decides to distribute cash in the form of dividends. For some companies it is a way of showing that the company is stable financially and can fulfill the commitment of paying out a dividend. Also it is a way for companies to mitigate agency problems when they have excess cash.
The fact that shareholders are taxed twice through this repayment methodology infers that dividends are not their repayment technique of choice. Furthermore, paying out cash reserves through dividends also has the effect of both reducing the company’s assets and also inhibited the company’s ability to fund future growth as Dividends reduce the company’s retained earnings.
Based on the financing needs, as above dividends would be additional stretch on company finances
Although Porsche is publicly traded, the company is controlled by only two stockholders, the Porsche and Piéch families. As the quotation by Holger Härter makes clear, the two families hold exclusive shareholder influence over management. An interesting point for class discussion is whether the families actually ever exercise these rights. It is not clear from the information or evidence presented that they influence or direct current management headed by Dr. Wendelin Wiedeking. They may simply agree with current leadership and therefore remain quietly
In general the three-stage approach allows us to add complexity to the standard dividend discount models by enabling changing growth scenarios throughout the forecasting period: an initial period of higher than normal growth, a transition/consolidation period of declining growth and final a period of stable growth. The main assumptions are that the company on which we conduct the calculation study currently is in extraordinary strong growth phase. The time period with the extraordinary strong growth must be strictly defined and eventually be replaced with the declining growth assumption. Lastly, Capital Expenditures and Depreciation are expected to grow at the same rate as revenues. .
The dividends that stockholders receive and the value of their stock shares depend on the business’s profit performance. Managers’ jobs depend on living up to the business’s profit goals.
A dividend is a usually distributed in cash form to stock holders of a corporation approved by the board of director. It may also include stock dividend or other forms of payment. A stock dividend represents a distribution of additional shares to common stockholders. Dividends are only cash payments regularly made by corporations to their stockholders.
Once a company makes a profit, they must decide on what to do with those profits. They could continue to retain the profits within the company, or they could pay out the profits to the owners of the firm in the form of dividends. Once the company decides on whether to pay dividends, they may establish a somewhat permanent dividend policy, which may in turn impact on investors and perceptions of the company in the financial markets. What they decide depends on the situation of the