© 2012 McGraw-Hill Ryerson LimitedChapter 18 -1  Cash Dividend: Payment of cash by the firm to its shareholders ◦ Regular cash dividends are generally.

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Presentation transcript:

© 2012 McGraw-Hill Ryerson LimitedChapter  Cash Dividend: Payment of cash by the firm to its shareholders ◦ Regular cash dividends are generally paid quarterly ◦ Extra dividends are one-time dividends and unlikely to be repeated  Ex-Dividend Date: Date that determines whether a stockholder is entitled to a dividend payment; anyone holding stock before this date is entitled to a dividend  Record Date: Person who owns stock on this date received the dividend LO1

© 2012 McGraw-Hill Ryerson LimitedChapter  A company has declared a dividend with a payment date of June 30 th. The date of record is Monday, June 6 th WedThuFriSatSun Mon 1 Date of Record Count back 2 business days Ex-dividend Date xx Cum- dividend Date LO1

© 2012 McGraw-Hill Ryerson LimitedChapter  Stock dividend: Distribution of additional shares, instead of cash, to the firm’s shareholders  Stock split: Issue of additional shares to a firm’s shareholders  Reverse split: Issue of new shares in exchange for old shares, which results in the reduction of outstanding shares  Dividend Reinvestment Plan (DRIP): Enables shareholders to reinvest dividends into additional new shares  Share purchase plan: Allows shareholders to make cash contributions toward the acquisition of new shares LO1

© 2012 McGraw-Hill Ryerson LimitedChapter An example of stock dividend: XYZ Inc. has 2 million shares currently outstanding at a price of $15 per share. The company declares a 50% stock dividend. How many shares will be outstanding after the dividend is paid? After the stock dividend what is the new price per share and what is the new value of the firm? Additional shares issued = 2 mil  0.50 = 1 mil New total shares outstanding = 2 mil + 1 mil = 3 mil Old value = 2 mil  $15 = $30 mil = New value New price per share = $30 mil/3 mil = $10 LO1