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POLITICA DE DIVIDEND

Cosideratii generaleTeorii aferenteFormele de plata a dividenduluiLegatura intre profit si dividend

Forme de plata a dividendului

- termenul de dividend se refera in mod uzual la distribuirea in cash a castigului

- 1- 4 ori pe an

- exista modalitati de plata a dividendului in actiuni sau active sau (liquidating dividend) => nu sunt cu adevarat dividende

Dividend PolicyWhat is It?

• Dividend Policy refers to the explicit or implicit decision of the Board of Directors regarding the amount of residual earnings (past or present) that should be distributed to the shareholders of the corporation.– This decision is considered a financing decision

because the profits of the corporation are an important source of financing available to the firm.

– In the absence of dividends, corporate earnings accrue to the benefit of shareholders as retained earnings and are automatically reinvested in the firm.

– When a cash dividend is declared, those funds leave the firm permanently and irreversibly.

– Distribution of earnings as dividends may starve the company of funds required for growth and expansion, and this may cause the firm to seek additional external capital.

Corporate Profits After TaxRetained Earnings

Dividends

Dividends a Financing Decision

Declaration DateDate ofRecord

Date ofPayment

Ex Dividend Date is determined by the Date of Record.The market value of the sharesdrops by the value of the dividendper share on market opening…comparedto the previous day’s close.

The Board Meetsand passes themotion to createthe dividend

2 business days prior to the Date of Record

Dividend Declaration Time Line Theoretically, stock price should adjust exactly…

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Actual ex-dividend day price behavior and tax differences

• The stock price around the ex-dividend date actually drops by less than the dividend amount to accommodate the tax preferences of investors.

• Certain investors (tax-exempt or very low tax bracket) may be able to make excess returns by trading around this date.

• These investors would buy the stock before the ex-dividend day, sell it after it goes ex-dividend, collect the dividend making a profit because the dividend exceeds the price drop. This is referred to as dividend capture or dividend arbitrage.

• Ex-dividend day equality where the marginal investor is indifferent between selling the stock before and after the ex-dividend day:

- lowers stock price slightly - large drop in stock price- little psychological appeal - much stronger potential

signalling effect- recapitalization of earnings - no recapitalization- no change in proportional - same

ownership- odd lots created - odd lots rare- theoretically, no value to - same

the investor

Stock Dividends versus Stock Splits

Stock Dividends Stock Splits

Legatura intre profit si dividend

USD

pe

actiu

ne 3

4

2

1

CastigCastig pepe actiuneactiune

Dividend Dividend pepe actiuneactiune

Timp

Legatura intre profit si dividend

USD

pe

actiu

ne 3

4

2

1

CastigCastig pepe actiuneactiune

Dividend Dividend pepe actiuneactiune

Timp

Cash dividend payment Cash Dividend PaymentsDividend Yields

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average% % % % % % % % % %

BCE 4.69 3.42 2.52 1.41 1.07 3.15 3.99 4.08 4.29 4.44 3.31Celestica Inc. 0 0 0 0 0 0 0 0 0 0 0.00CIBC 3.67 3.07 2.85 3.37 3.17 2.9 3.48 3.28 3.31 3.57 3.27Cott Corporation 0.23 0.53 0.54 0 0 0 0 0 0 0 0.13Kinross Gold Corporation 0 0 0 0 0 0 0 0 0 0 0.00TransAlta Corporation 6.22 5.16 4.52 5.35 5.59 4.06 4.92 5.73 5.88 4.51 5.19Yellow Pages Income Fund 7.34 7.09 7.22

Table 22-1 S&P/TSX 60 Index Dividend Yields

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Legatura intre profit si dividend

Dividendele cres mai lent decat profitul atunci cand profitul creste, dar in acelasi timp, dividendele scad mai

lent decat profitul atunci cand acesta scade.

10

1

00

PPcandatunci

PP

DD

10

1

00

PPcandatunci

PP

DD

Teoria reziduala a dividendului

=> profitul net al intreprinderii trebuie distribuit actionarilor atata timp cat acestia ar putea obtine in alta parte un randament mai ridicat in conditii de risc comparabile

Modelul Walter

In 1956 Economistul J. Walter propune un model al deciziei de distribuire a dividendelor. Astfel politica

de dividende nu este o decizie financiara foarte importanta. Cele mai importante sunt deciziile de

investitii si apoi cele de finantare.

Daca criteriul VAN determina selectia anumitor proiecte de investitii (cele mai

rentabile) si anumite surse de finantare (cele mai ieftine, inclusiv prin autofinantare) atunci

dividendul va fi suma ramasa din profitul neinvestit, dupa adoptarea celor doua decizii

de mai sus.

Suma dividendelor distribuite variaza de la o perioada la alta, in

functie de oportunitatile de investitii ce apar pentru managerii

firmei

=> politica oportunista

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Dupa Walter, profitul trebuie utilizat pentru autofinantarea proiectelor de

investitii, ori de cate ori rentabilitatea scontata a acestora (r)

este mai mare decat costul capitalului intreprinderii (K).

Modelul lui Walter

EPS- beneficiul, castigul per actiuneD- dividendul per actiuneP – valoarea unei actiuni

KK

DEPSrDP

)(

0

Ex: Presupunem ca EPS = 70.000 lei, D= 7.000 leir= 21%, K=17%

P = 498.982

17.017.0

)000.7000.70(21.0000.70

P

Atat timp cat r>K, intreprinderea are interes sa reinvesteasca tot profitul in finantarea

proiectelor de investitii (daca r si K raman nemodificate)

Politica optima in aceste conditii este cea a reinvestirii totale a profitului

Noua valoare a actiunii va fi:

17.017.0

000.7021.00max 0

P

650.508max 0 P

Daca r< K, firma trebuie sa adopte o politica de distribuire a celei mai mari parti sau a totalitatii profitului (D=EPS).

Daca r=K, atunci valoarea de piata a actiunii este independenta de politica de dividend

Politica de dividend este astfel mai de graba o politica de autofinantare, intrucat noile proiecte de investitii nu pot fi adoptate decat daca au VAN>0 deci r>K.

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M&M’s Dividend Irrelevance TheoremAssumptions

• No Taxes• Perfect capital markets

– large number of individual buyers and sellers– costless information– no transaction costs

• All firms maximize value• There is no debt

M&M’s Dividend Irrelevance Theorem

• The dividend policy has NO effect on either the price of a firm’s stock or its cost of capital.

• M&M => value of the firm depends only in income produced by its assets and not how the income is split between dividends and retained earnings.

The “Bird-in-the-Hand” TheoryM&M’s Assumptions Relaxed

• Risk is a real world factor.• Firm’s that reinvest free cash flow, put that

money at risk – there is no certainty of investment outcome – those dividends that are reinvested…could be lost!

• => investors value dollar of expected dividend more than a dollar of expected capital gain (less risk involved)

Tax Preference Theory

• Taxation of dividends• Taxes are not paid on a gain until the stock

is sold -> postpone payment• Different taxation depending on holding

period• => less dividend payout ratio prefered by

investor

Welcome to the Real World!

Transactions Costs– Underwriting costs are very high, providing a

strong incentive for firms to finance growth out of free cash flow

• With high growth rates have little incentive to pay dividends

• With volatile earnings conserve cash from year to year to finance projects and therefore pay very conservative dividends

Welcome to the Real World!

Dividends and Signalling– Under conditions of information asymmetry, shareholders and

the investing public watch for management signals (actions) about what management knows.

– Management is therefore very cautious about dividend changes…they don’t want to create high expectations (this is the reason for extra or special dividends) that will lead to disappointment, and they don’t want to have investors over react to negative earnings surprises (the sticky dividend phenomenon)

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Share Repurchases

Dividend Policy

Current EPS= [total earnings] / [# of shares] = $4.4 m / 1.1 m = $4.00

Current P/E ratio= $20 / $4 = 5X

EPS after repurchase of 100,000 shares= $4.4 m / 1.0 = $4.40

Repurchase Example

• EPS should increase following the repurchase if earnings after-tax remains the same

• a higher market price per outstanding share of common stock should result

• stockholders not selling their shares back to the firm will enjoy a capital gain if the repurchase increases the stock price.

Effects of A Share Repurchase

Borrowing to Pay Dividends

Signalling

Assets: Liabilities:Cash 10 Long-term Debt 0Fixed Assets 140 Common Stock 50

Retained Earnings100Total Assets $150 Total Claims $150

After Borrowing…before cash dividend:Assets: Liabilities:

Cash 60 Long-term Debt 50Fixed Assets 140 Common Stock 50

Retained Earnings100Total Assets $200 Total Claims $200

Before Borrowing:

0% Debt

25% Debt

Borrowing to Pay DividendsAn Example

Assets: Liabilities:Cash 60 Current liabilities50Fixed Assets 140 Long-term Debt 50

Common Shares 50Retained earnings50

Total Assets $200 Total Claims $200

After Cash Dividend payment of $50Assets: Liabilities:

Cash 10 Long-term Debt 50Fixed Assets 140 Common Stock 50

Retained earnings 50Total Assets $150 Total Claims $150

After Dividend Declaration…before date of payment.50% Debt

33% Debt

Borrowing to Pay DividendsBorrowing to Pay DividendsAn Example …An Example …

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• Dividend and double taxation