Corporate Finance #15 Dividend Policy
Learn about factors involved in corporate dividend policy decisions from a certified public accountant (CPA)
What you will learn
Explain the factors involved when making corporate dividend policy decisions
Describe dividend policy as it relates to phases in the corporate life cycle
Discuss the impact shareholders have over dividend policy
Explain dividend payment terms
Compare stock dividends and cash dividends
Describe when a company may use stock dividends
Discuss the concept of a stock split
Explain when a company may use a stock split
This course will cover corporate dividend policy.
We will include many example problems, both in the format of presentations and Excel worksheet problems. The Excel worksheet presentations will include a downloadable Excel workbook with at least two tabs, one with the answer, the second with a preformatted worksheet that can be completed in a step-by-step process along with the instructional videos.
Dividends represent earnings that a corporation distributes to owners. Dividends for a corporation can be compared do withdrawals from a sole proprietorship or partnership. However, there are substantial differences between a partnership withdrawal and a corporate dividend due to differences in the business structure.
A partner in a partnership generally has more control over the amount of draws they can take and when they can take them. Different partners may also draw different amounts at different times.
By contrast, a corporation must give uniform distributions of dividends to each class of shares, resulting in far less direct control by an individual shareholder to determine the amount of dividends or when they will be distributed.
The dividend distribution policy of a corporate can be very complex, involving many factors, including the life cycle of the company, the cash flow of the company, and the preferences of the shareholders.
A company that is in the growth phase of its life cycle is more likely to have smaller dividends, preferring to reinvest the money to grow operations. Shareholders who would like to invest over a longer time frame may like this policy because the increase in value of the company will increase the value of the shares.
A company in a mature phase of the life cycle may not have as much need to reinvest earnings and is more likely to distribute earnings to shareholders. Many investors like investing in dividend yielding companies because they receive a return on their investment in the form of dividends.
Practice Probs. - Dividend Policy
Excel Probs. - Dividend Policy
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