Daniel Adam Blanco

PAYOUT POLICIES

How to pay out cash to shareholders?

Dividends

Buy back shares

1980 2005

How to pay dividends and repurchase stocks?

Set by? Board of Directors

To whom? Depends on Record Date

Stocks soldw/ dividends?

Until 2 business dayBefore Record Date

How to pay dividends and repurchase stocks?

Cash

No Cash

Regular

Special

DRIPs

Stock Dividends

How to pay dividends and repurchase stocks?

How do firms repurchase stock?

Open market Tender plans

Dutch auctionDirect negotiation

How do companies decide on the payout?

Firm´s dividend policies

% Agreement

Try to avoid reducing dividend

Smooth dividend stream

Focus more on dividendchanges than absolute levels

Reluctancy to make changesthat have to be reversed

We consider the change in thedividend

Better to raise new funds

How do companies decide on the payout?

Then, why?

Acc. Unwanted Cash

Change Capital Structure

▲debt ▼equity

How do companies decide on the payout?

Use of Dividends = Use of Repurchases?

Dividends are not an appropiate way to pay out transitory earnings

The information in dividends and stock purchases

Is information reliable?

Assets and earnings

Dividends

Meaningless

Reliable in the l/r

The information in dividends and stock purchases

Dividend changes predict future?

No increase without enough cash

Investors like increase in dividends

Unexpected change can cause stock prices to bounce

The information in dividends and stock purchases

What information do repurchases give?

Signal of a manager´s confidence in the future

The payout controversy

The payout controversy

Miller and Modigliani

Rightists

Radical Left

The payout controversy

Rightists

Favor large payouts

Financial institutions

Clientele of investors

The payout controversy

Rightists

Regular dividends

Relieve transaction costs

Behavioral psychology

Lack of profitable investment

The payout controversy

Surplus of money = dividends

Situation

Fixed investment.

No borrowing

Transfer Value

The payout controversy

Transfer of Value

The payout controversy

Transfer of Value

The payout controversy

Therefore

Value = assets and CF

▲payout = ▲cash must be recoveredby ▲stocks

Payout constant▲dividend= ▼cash shareholders

receive for repurchase

The payout controversy

Taxes and Radical Left

High taxes on dividends

Available cash=retained or used for

repurchasing

The payout controversy

Any evidence?

The payout controversy

Any evidence?

Taxes are important

But its difficult to measure

The payout controversy

Middle-of-the-roaders

Company´s value is not affectedby dividend policy

The payout controversy

Middle-of-the-roaders

Company´s value is not affectedby dividend policy

Supply of dividends is free to adjustto demand

Thanks!