Fundamentals of Corporate Finance

15

Dividends, Stock Repurchases, and Payout Policy

Learning Objectives

Explain what a dividend is, and describe the different types of dividends and the dividend payment process. Calculate the expected change in a stock's price around an ex-dividend date.

Explain what a stock repurchase is and how companies repurchase their stock. Calculate how taxes affect the after-tax proceeds that a stockholder receives from a dividend and from a stock repurchase.

Discuss the benefits and costs associated with dividend payments and compare the relative advantages and disadvantages of dividends and stock repurchases.

Define stock dividends and stock splits and explain how they differ from other types of dividends and from stock repurchases.

Describe factors that managers consider when setting the dividend payouts for their firms.

In July 2010, managers at Praxair, Inc., an international producer ...