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Paying a dividend costs the company and as such will decrease the value of the company and the stock. If all other factors are equal, a buyer would prefer a stock that is expected to pay the higher dividend. If Company A is expected to pay $10 per share annually and Company B $8, an investor who wants to make 8% would be willing to bid $125 for a share of Company A but only $100 for Company B. On the date that a dividend is effective, a company's stock will drop by the amount of the dividend because that amount will be paid to the person who owned the stock at the beginning of that day.
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Gary Wells Inc plans to issue perpetual preferred stock with an annual dividend of 6.50 per share If the required return on this preferred stock is 6.5 percent at what price should the stock sell?
To answer this question, the appropriate formula is the discounted dividend model without growth which is presented as follows: P = DIV / r where P = price of the stock DIV = the amount of the annual dividend r = the required rate of return Using the above formula: V = $6.50 / 6.5% = $6.50 / 0.065 = $100 The price of the stock would be approximately $100 using the discounted dividend model.
What is a dividend rate?
Dividend rate is defined as a % when compared to the face value of a stock. Dividend is nothing but periodic sharing of profit by public limited companies with its share holders. Assuming a stock with a face value of Rs. 10/- declares a dividend of Rs. 5/- per share then dividend rate would be 50%
How do stock dividends affect stock indexes?
The stock that forms the part of the index will have a weight in the index, i.e. how much the movement of that stock affects the movement of the index. When a dividend goes ex, this will trigger a 'drop point' on the index. This is calculated from the value of the dividend, the weight in the index and the fx rate, if the stock is priced in a different currency from the index. When a dividend goes ex, the price of the underlying stock will open that morning lower by the amount of the dividend. This usually doesn't have a huge effect as the percentage change is well within day trading movements of a stock anyhow. The same applies for the level of an index move - the index will open lower by the drop point amount, but will generally be negligible on the movements of intra-day trading anyhow. You may have to be careful with special dividends, as they can be a higher percentage of the stock trading price, which may actually cause a noticeable drop in intra day trading price. They can also affect index levels. Dividends have a different effect on options though, but generally the price of a basic call / put would already have been adjusted before the ex-date. If you have a structured product, for example a vertical spread consisting of 2 long and 2 short options, then your position won't be affected as what you lose on one you will make on the other. If you have a time spread where your position is dependant on the stock price staying where it is, then you need to do further analysis on your Greeks and how it will affect option price. Thanks.
Why would a company issue a stock dividend instead of a cash dividend?
From InvestorWords.com: A dividend paid as additional shares of stock rather than as cash. If dividends paid are in the form of cash, those dividends are taxable. When a company issues a stock dividend, rather than cash, there usually are not tax consequences until the shares are sold. These additional shares of stock are usually distributed to shareholders at no cost. Please see the following site for additional information: http://en.wikipedia.org/wiki/Dividend
What effect does a stock dividend have on a companys total assets?
A Dividend would result in the company's asset decreasing. Let us say a company has $2,000,000,000 total assets and 1,000,000 shares in the stock market.If the company offers a $5 dividend per share then it means that they need to pay out $5,000,000 as dividends which means their net assets would be $1,995,000,000/- after the dividend payout.
Gary Wells Inc plans to issue perpetual preferred stock with an annual dividend of 6.50 per share If the required return on this preferred stock is 6.5 percent at what price should the stock sell?
To answer this question, the appropriate formula is the discounted dividend model without growth which is presented as follows: P = DIV / r where P = price of the stock DIV = the amount of the annual dividend r = the required rate of return Using the above formula: V = $6.50 / 6.5% = $6.50 / 0.065 = $100 The price of the stock would be approximately $100 using the discounted dividend model.
What is an ex-dividend date?
The ex-dividend date is the date on which a stock no longer trades with it's most recent dividend. Stocks purchased on the ex-dividend date will not settle in time for the record date (date in which you must be an owner of stock on the company's books). Because of this you would not receive the dividend that is soon to be paid out. Stocks are usually noted with an x before their symbol on this date and the quoted price will typically be lower due to the fact that the stock is no longer trading with the dividend.
What is an ex dividend date?
The ex-dividend date is the date on which a stock no longer trades with it's most recent dividend. Stocks purchased on the ex-dividend date will not settle in time for the record date (date in which you must be an owner of stock on the company's books). Because of this you would not receive the dividend that is soon to be paid out. Stocks are usually noted with an x before their symbol on this date and the quoted price will typically be lower due to the fact that the stock is no longer trading with the dividend.
Tunney Industires can issue perpetual preferred stock at a price of 47.50 per share The stock would pay a constant annual dividend of 3.80 a share What is the company's cost of preferred stock?
.80
At the date of the financial statements common stock shares issued would exceed common stock shares outstanding as a result of the 1declaration of a stock split 2declaration of a stock dividend?
declaration of a stock dividend
Relationship between shareholder return and market share price?
Sometimes there is a relationship between shareholder return and the price of a stock. However, it is not real close. People buy a stock on the basis of what they think it will return in the future rather than what it has returned in the past. If a stock keeps slowly increasing its dividend, people generally assume that the company will continue in that direction. Most people would pay a little more for that stock than they would for a preferred stock in the same company that would never increase its dividend. However, if a company decreases its dividend, people take that as a negative sign. A number of people will dump the stock. It can still be a good company but a lot of people will get out. They see a company that is getting into trouble. The stock could fall below what it would be if just the ratio of the last dividend to the price were considered. Some people will buy the stock because they see a stock with a 10% dividend. A number of companies do not pay dividends. Some are startups with special products that a big company might purchase. There is no telling if their product will ever be worth anything. That is strictly a gamble.
What would cause common stock shares issued to exceed common stock shares outstanding?
declaration of a stock dividend
When it comes to the items on the statement of cash flows would you expect a stock dividend to appear in the financing section?
If stock dividend is received then it will be shown under cash flows from investing activities while if stock dividend is paid then it is shown under cash flow from financing activities.
What is a dividend rate?
Dividend rate is defined as a % when compared to the face value of a stock. Dividend is nothing but periodic sharing of profit by public limited companies with its share holders. Assuming a stock with a face value of Rs. 10/- declares a dividend of Rs. 5/- per share then dividend rate would be 50%
Why would Microsoft be a good stock to own?
It's not. At least they pay a dividend.
How do stock dividends affect stock indexes?
The stock that forms the part of the index will have a weight in the index, i.e. how much the movement of that stock affects the movement of the index. When a dividend goes ex, this will trigger a 'drop point' on the index. This is calculated from the value of the dividend, the weight in the index and the fx rate, if the stock is priced in a different currency from the index. When a dividend goes ex, the price of the underlying stock will open that morning lower by the amount of the dividend. This usually doesn't have a huge effect as the percentage change is well within day trading movements of a stock anyhow. The same applies for the level of an index move - the index will open lower by the drop point amount, but will generally be negligible on the movements of intra-day trading anyhow. You may have to be careful with special dividends, as they can be a higher percentage of the stock trading price, which may actually cause a noticeable drop in intra day trading price. They can also affect index levels. Dividends have a different effect on options though, but generally the price of a basic call / put would already have been adjusted before the ex-date. If you have a structured product, for example a vertical spread consisting of 2 long and 2 short options, then your position won't be affected as what you lose on one you will make on the other. If you have a time spread where your position is dependant on the stock price staying where it is, then you need to do further analysis on your Greeks and how it will affect option price. Thanks.
Why would a company issue a stock dividend instead of a cash dividend?
From InvestorWords.com: A dividend paid as additional shares of stock rather than as cash. If dividends paid are in the form of cash, those dividends are taxable. When a company issues a stock dividend, rather than cash, there usually are not tax consequences until the shares are sold. These additional shares of stock are usually distributed to shareholders at no cost. Please see the following site for additional information: http://en.wikipedia.org/wiki/Dividend
