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Get Started in Shares by Glen Arnold

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Share buy-backs and special dividends

An alternative way to return money to shareholders is for the company to repurchase issued shares. Buy-backs may also be a useful alternative when the company is unsure about the sustainability of a possible increase in the normal cash dividend. A stable policy may be pursued on dividends, then, as and when surplus cash arises, shares are repurchased. This two-track approach avoids sending an over-optimistic signal about future growth through underlying dividend levels.

A second possible approach to returning funds without signalling that all future dividends will be raised abnormally is to pay a special dividend. This is the same as a normal dividend but usually bigger and paid on a one-off basis.

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