Dividends: Notes

1083 Words Jan 9th, 2018 4 Pages
Can the wrong dividend policy bankrupt a firm? And does dividend policy play a role in a company's downfall or not?
Dividend policy cannot bankrupt the firm. Only creditors can put a firm into bankruptcy. Because shareholders are subordinated, they cannot be paid out if the company is insolvent.

2. 2. What is the value of your investment after the stock goes ex-dividend? ( what is the impact of it on the price and returns for investors?)
If your stock goes ex-dividend, the value of the share drops. This is because after that date, the seller of the stock will be paid the dividend, and the buyer will not. Because the buyer will not be paid the dividend, the value of the stock drops at that point (Investopedia, 2012). Although the price drops, there is no impact on the return for investors, because the amount of the drop should be the amount of the dividend. Thus, the return to the investor should not change as the result of the stock going ex-dividend.

3. Cash Dividends and Dividend Payment which one is better to use to maximize the shareholders wealth? What conditions we prefer to use Cash Dividends or Dividend Payment to increase the value of the company and to maximize the shareholders wealth?

To maximize shareholder wealth, there should not be any difference between cash dividends and stock dividends ( I assume this is what is meant by 'dividend payment'). The cash payment would be in the same amount as the stock payment, so the investor should not have a…

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