Part 1(a) Should be at least 300 words. Must use in text citations should be at least 2 references that are based in the United States and websites.
The harder we look at the dividend picture, the more it seems like a puzzle, with pieces that don’t fit together (Black, F. 1976). The dividend policy is only irrelevant because it does not affect the value of its shares or the returns to investors. Modigliani and Miller stated the ultimate value of firms is derived from its underlying free cash flow. However, it does not take out that it is important and relevant in firms. According to Berk, there are a few alternate policies to dividend policy. Paying dividend with excess cash causes the share prices falls when a dividend is paid because the reduction in cash decreases the market value of the firm’s assets (Berk, 2019.) Using share repurchase where there are no dividends When Genron repurchased the shares in its open market the market value of Genron’s assets fall when it pays out cash and the numbers of shares falls, but they offset each other, and the share price remains the same. Furthermore, when reinvesting or selling shares, the firm can replicate the payout method on their own (Berk, 2019). The last policy is the high dividend (equity issue) is if the firm paid a larger share now it still would increase the dividend and does not benefit the shareholders.
Using the second alternatives can be more efficient ways because of the result on keeping share prices the same. Using these three alternatives can help managers make those decisions about how to return the capital to shareholders. Comparison of the three and what it would come back for the shareholders would almost make that decision for those mangers. What the manager needs to realize though is that no universal policy is appropriate for all firms because dividend policy is sensitive to numerous factors including firm characteristics, market characteristics, and substitute forms of dividends. (Baker, K.H., Weignad, R. 2015). There is no one size fits all. Mangers can use that to apply to the alternative they have and pick the best solution.
Baker, K. and Weigand, R. (2015). Corporate dividend policy revisited. Managerial Finance, 41(2), 126-144.
Berk, J. B., & DeMarzo, P. M. (2019). Corporate finance: The Core (5th ed.). Boston, MA: Pearson. ISBN: 9780135161159
Black, F. (1976). The dividend puzzle. The Journal of Portfolio Management, 2(2), 5-8.
Part 1(b) Should be at least 300 words. Must use in text citations should be at least 2 references that are based in the United States and websites.
Payout policy is the optional method of free cash flow utilization (Berk & DeMarzo). Payouts from firms come in various options depending on how the firm does business. How a firm does business will ultimately dictate how payouts to stakeholders are dictated (Jordan et al., 2018). Shareholders sometimes receive dividends quarterly. Financial analysts tend to focus on dividend payout ratio or percentage of earnings to payout dividends (Linkos & Brown, 2021). Investors focus the growth of their finances so any type of additional payout will be something to gauge any stockholder or stakeholder. A dividend policy is relevant you must entice all parties involved so that it is win-win scenario. Investors are typically seeking to capitalize on any investment options available. A vegan mentor of mine was discussing how the McDonalds firm was everything to him four times a year. He would only care about not so much the food the firm provides, but his quarterly dividends that the firm provided him upon his investment. Investors research and options available to various payout policies makes a difference to what method is most appealing to them.
Berk, J. B., & DeMarzo, P. M. (2019). Corporate finance: The Core (5th ed.). Boston, MA
Jordan, B. D., Liu, M. H., & Wu, Q. (2018). Organizational Form and Corporate Payout
Policy. Journal of Financial & Quantitative Analysis, 53(2), 789–813. https://doi-org.saintleo.idm.oclc.org/10.1017/S0022109017001211
Linkos, P., &Brown, J. What is a good dividend payout ratio? – US news & world report. (2021). Retrieved August 18, 2022, from https://money.usnews.com/investing/dividends/artic…