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Corporate Finance, 5th Edition
book

Corporate Finance, 5th Edition

by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi
December 2017
Intermediate to advanced content levelIntermediate to advanced
1024 pages
32h 22m
English
Wiley
Content preview from Corporate Finance, 5th Edition

Chapter 37 Distribution in practice: dividends and share buy-backs

Now, give the money back

The topics addressed in this chapter are the logical complement of the preceding chapter. Distribution of cash can take the form of ordinary dividend payments, but also of exceptional dividends, share buy-backs or capital reductions.

Section 37.1 Dividends

The dividend is fixed by the ordinary general meeting of shareholders who decide the allocation of earnings based upon the proposal from the board of directors (or the supervisory board). It is then paid to shareholders in the following days or months.

1. Payout ratio and dividend growth rate

In practice, when dividends are paid, the two key criteria are:

  • the rate of growth of dividends per share;
  • the payout ratio (d), represented by
numbered Display Equation

All other criteria are irrelevant, frequently inaccurate and possibly misleading. For example, it is absurd to take the ratio of the dividend to the par value of the share, since par value has little to do with equity value.

In this regard, numerous tests have been performed to show that investors systematically re-evaluate a company when the amount of the dividend is made public.

In Europe, a payout ratio ...

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Publisher Resources

ISBN: 9781119424482Purchase book