What is Dividend Irrelevancy?


0
16 comments

–          The net result of changing a company’s dividend is the substitutability of capital gains (i.e. share value increases) as the dividend is reduced for cash when it is paid.

Advertisement

–          Increased dividends = decreased market value, and vise-versa.

–          Truly organic for the company: if dividends are changed, and no other action undertaken, the company’s investments will also change. Using above diagram, an increase in dividends would be shown as a widening of the dividend pipe and a narrowing of the retention pipe resulting in a smaller investment amount.

–          To isolate the effect of dividend choices, the company’s investment plans must be kept intact as dividends change.

–          Increase in dividends = increase in new equity (more shares issued)

–          Decrease in dividends = decrease in new equity (less shares issued)

–          The company share value in total is unchanged, therefore existing shareholder wealth is the same.

–          When the effect of company financial decisions upon shareholders portfolios can be undone by the offsetting actions of shareholders, the company financial decision is irrelevant!

 

Advertisement
The following two tabs change content below.
We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to contact@bms.co.in.

Like it? Share with your friends!

0
16 comments
BMS Team

We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to contact@bms.co.in.

16 Comments

Ask Us On WhatsApp
Choose A Format
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Poll
Voting to make decisions or determine opinions
Story
Formatted Text with Embeds and Visuals
List
The Classic Internet Listicles
Countdown
The Classic Internet Countdowns
Open List
Submit your own item and vote up for the best submission
Ranked List
Upvote or downvote to decide the best list item
Meme
Upload your own images to make custom memes
Video
Youtube, Vimeo or Vine Embeds
Audio
Soundcloud or Mixcloud Embeds
Image
Photo or GIF
Gif
GIF format