Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 421 Measures of Dividend Policy ! Dividend Payout: measures the percentage of earnings that the company pays i ...

Aswath Damodaran 422 Dividend Payout Ratios: January 2005 The median payout ratio is between 30 and 40% for firms that pay divid ...

Aswath Damodaran 423 Dividend Yields in the United States: January 2005 Here again, there is a trend. Over the last two decades, ...

Aswath Damodaran 424 Three Schools Of Thought On Dividends ! 1. If (a) there are no tax disadvantages associated with dividends ...

Aswath Damodaran 425 The balanced viewpoint ! If a company has excess cash, and few good investment opportunities (NPV> 0 ), ...

Aswath Damodaran 426 Why do firms pay dividends? ! The Miller-Modigliani Hypothesis: Dividends do not affect value ! Basis: If ...

Aswath Damodaran 427 The Classic Tax Response: Until 2003 , dividends were taxed much more heavily than capital gains... This ha ...

Aswath Damodaran 428 Gauging the tax effect by looking at Price Behavior on Ex- Dividend Date Let Pb= Price before the stock goe ...

Aswath Damodaran 429 Cashflows from Selling around Ex-Dividend Day ! The cash flows from selling before then are- Pb - (Pb - P) ...

Aswath Damodaran 430 Price Change, Dividends and Tax Rates If Pb - Pa = D then to = tcg Pb - Pa < D then to > tcg Pb - Pa ...

Aswath Damodaran 431 The Evidence on Ex-Dividend Day Behavior OrdinaryIncome CapitalGains (Pb-Pa)/D Before 1981 70 % 28 % 0. 78 ...

Aswath Damodaran 432 Dividend Arbitrage ! Assume that you are a tax exempt investor, and that you know that the price drop on th ...

Aswath Damodaran 433 Example of dividend capture strategy with tax factors ! XYZ company is selling for $ 50 at close of trading ...

Aswath Damodaran 434 The wrong reasons for paying dividends 1. The bird in the hand fallacy ! Argument: Dividends now are more c ...

Aswath Damodaran 435 2. We have excess cash this year... ! Argument: The firm has excess cash on its hands this year, no investm ...

Aswath Damodaran 436 The Cost of Raising Capital If a small firm has excess cash and is uncertain about its future investment ne ...

Aswath Damodaran 437 Are firms perverse to pay dividends? In the case of Citizen’s Utility (studied by John Long), investors had ...

Aswath Damodaran 438 Evidence from Canadian Firms Company Premium for Cash dividend over Stock Dividend Shares Consolidated Bath ...

Aswath Damodaran 439 A clientele based explanation ! Basis: Investors may form clienteles based upon their tax brackets. Investo ...

Aswath Damodaran 440 Results from Regression: Clientele Effect Dividend Yieldt = a + b "t + c Aget + d Incomet + e Differential ...