Dividends and Payout Policy
Dividend policy is an important subject in corporate finance, and dividends are a major cash outlay for
many corporations. At first glance, it may seem obvious that a firm would always want to give as much as
possible back to its shareholders by paying dividends. It might seem equally obvious, however, that a firm
could always invest the money for its shareholders instead of paying it out. Should the firm pay out money
to its shareholders, or should the firm take that money and invest it for its shareholders?
Can the wrong dividend policy bankrupt a firm? The following anecdote suggests that dividend
policy can play a role in a company’s downfall.
The automobile industry was quite prosperous in the 1920s, but was hit hard by the depression. Studebaker
Corporation, which was relatively weak to begin with, suffered more than other automotive manufacturers.
Part of the reason for its financial problems was the belief by the firm’s president that dividends alone could
increase the value of the stock. He implemented a dividend policy that increased the dividend payout ratio
from 43 percent in the early 1920s to 91 percent in 1929. However, the dividend was held constant in 1930
and 1931 even as sales and earnings decreased. This led to a payout ratio of 500 percent(!) in 1930 and 350
percent in 1931. In 1932, the company lost $8.7 million, but still paid $1 million in dividends! The firm’s
financial health was damaged significantly by the generous dividend policy and filed for reorganization in
March 1933. Tragically, the firm’s president took it very personally and shot himself three months later.
• Regular cash dividend = cash payments made directly to stockholders as part of a firm’s normal operations (usually each quarter)
• Extra cash dividend = paid over and above the regular dividend (may not be repeated in the future)
• Special cash dividend = similar to extra dividend, but definitely won’t be repeated
• Liquidating dividend = some or all of the business has been sold
The most common type of dividend is a cash dividend. Later in the module, we discuss dividends paid in
stock instead of cash.
The basic types of cash dividends are these:
1. Regular cash dividend – normal dividends, usually paid on a quarterly basis.
• Commonly, public companies pay regular cash dividends four times a year.
2. Extra cash dividend – paid over and above the regular dividend, may or may not be repeated
3. Special dividend – one-time dividend paid over and above the regular dividend, won’t be repeated
• Special dividend is similar, but the name usually indicates that this dividend is viewed as a truly unusual or one-time.
4. Liquidating dividend
• The payment of a liquidating dividend usually means that some or all of the business has been liquidated
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Our essay writers are graduates with diplomas, bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.
- Plagiarism free papers
- Timely delivery
- Any deadline
- Skilled, Experienced Native English Writers
- Subject-relevant academic writer
- Adherence to paper instructions
- Ability to tackle bulk assignments
- Reasonable prices
- 24/7 Customer Support
- Get superb grades consistently
1. Place an order
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
PLACE THIS ORDER OR A SIMILAR ORDER WITH MAJESTIC GRADES TODAY AND GET AN AMAZING DISCOUNT