0
Why does 5 interest on a bond cost a firm less than a 5 dividend on its common stock?
The most common reason pointed to is: Interest is an operating expense and is tax deductable to the company paying it. Hence, they lower the tax they would have paid by their effective tax rate on the amount of interest they pay, which is similar to getting a lower rate. Say $100 of interest paid and a 35% corporate tax rate - a $35 tax savings (or reduction)is realized. essentially, only a $65 expense after benefit incurred. With certain uncommon exceptions, Dividends are paid from after tax earnings and are not deductable expenses. Pay $100 and the cost, (actually taken from the value of the company) is reduced by $100.
What else can I help you with?
How is preferred stock like a bond in that it offers a fixed dividend payment to investors?
Preferred stock is similar to a bond in that it provides investors with a fixed dividend payment. Just like a bond pays interest to bondholders, preferred stock pays a set dividend to its shareholders.
Which of these is a type of security dividend corporate bond common stock or treasury note?
None of the above are a type of dividend.
Define yield in mutual funds?
Yield is the interest earned on a bond, or the dividend paid on a stock or mutual fund.
In what ways is preferred stock like long-term debt?
Preferred stock typically pays a fixed dividend, in the same way that a bond (debt) pays a fixed amount of interest. Preferred stockholders are ahead of common stockholders in the event of a bankruptcy, but bondholders are ahead of them.Some issues of preferred stock are convertible to common stock, and the value of a convertible preferred stock may rise above the value it has due to the dividend alone. Bonds would not participate in that way in the success of the issuer.
Similarities of perpetual bond and no-growth common stock?
no growth in the value and pay interest forever
How is preferred stock like a bond in that it offers a fixed dividend payment to investors?
Preferred stock is similar to a bond in that it provides investors with a fixed dividend payment. Just like a bond pays interest to bondholders, preferred stock pays a set dividend to its shareholders.
Which of these is a type of security dividend corporate bond common stock or treasury note?
None of the above are a type of dividend.
A common stock which pays a constant dividend can be valued as if it were?
preferredstock
Define yield in mutual funds?
Yield is the interest earned on a bond, or the dividend paid on a stock or mutual fund.
In what ways is preferred stock like long-term debt?
Preferred stock typically pays a fixed dividend, in the same way that a bond (debt) pays a fixed amount of interest. Preferred stockholders are ahead of common stockholders in the event of a bankruptcy, but bondholders are ahead of them.Some issues of preferred stock are convertible to common stock, and the value of a convertible preferred stock may rise above the value it has due to the dividend alone. Bonds would not participate in that way in the success of the issuer.
Similarities of perpetual bond and no-growth common stock?
no growth in the value and pay interest forever
Which of the following are income tax deductible items to a corporation Common stock dividends preffered stock dvidends retained earnings or Bond interest expenses?
Interest expenses are tax deductible.
Does a stock dividend increase total assets?
Typically, the answer is no. Most stocks will drop slightly after the dividend is paid, and this will make your total asset pool worth the same amount after the dividend is paid. That is not to say that it is bad for a company to pay dividends. In fact, dividends tend to make the price of a stock take on some of the characteristics of a bond. Companies that consistently pay out a good dividend can have more stable stock prices as the economy slows and interest rates drop.
Why preferred stock is called hybrid security?
The phrase 'preferred stock' means stock whose holders are guaranteed priority in the payment of dividends but whose holders have no voting rights.Preferred stocks combine features of a stock and a bond, although they differ in many aspects from both. But since principally there are only two ways to invest--to be a part owner or to lend money--preferred stocks fall somewhere in between.Similarities with Common StocksØ Like common stocks, preferred stocks represent ownership in the issuing corporation. Ø Income from preferred stocks is called dividends, as is income from common stocks.Ø Common and preferred stocks are issued as perpetual securities, with no maturity date.Similarities with BondsØ Like most bonds, preferred stocks usually pay a fixed amount of income and fluctuate with interest rates. Many bonds are also issued with a call feature; when interest rates fall, a corporation can refinance high-coupon bonds and high-dividend preferred stocks with lower-cost debt.Ø Like bond it has no voting right.Ø Like bond preferred stock holders also can establish claim profit in the form of dividend before common stock holders.Since preferred stock posses both characteristic of common stock and bond that is why it is called hybrid security.
What is the average annual dividend yield for a bond dividend ETF?
The average annual dividend yield for a bond dividend ETF is the average percentage of dividends paid out by the ETF's bond holdings to investors each year.
What do you call a bond that can be changed into a specified number of shares of the issuers common stock?
Such a bond is an convertible bond.
What's the difference between a stock and a bond?
A stock represents ownership in a company, while a bond is a form of debt issued by a company or government that pays interest to the bondholder.
