About Me
Chartered Financial Analyst (CFA)
1 Ethical and Professional Standards
1-1 Code of Ethics
1-2 Standards of Professional Conduct
1-3 Guidance for Standards I-VII
1-4 Introduction to the Global Investment Performance Standards (GIPS)
1-5 Application of the Code and Standards
2 Quantitative Methods
2-1 Time Value of Money
2-2 Discounted Cash Flow Applications
2-3 Statistical Concepts and Market Returns
2-4 Probability Concepts
2-5 Common Probability Distributions
2-6 Sampling and Estimation
2-7 Hypothesis Testing
2-8 Technical Analysis
3 Economics
3-1 Topics in Demand and Supply Analysis
3-2 The Firm and Market Structures
3-3 Aggregate Output, Prices, and Economic Growth
3-4 Understanding Business Cycles
3-5 Monetary and Fiscal Policy
3-6 International Trade and Capital Flows
3-7 Currency Exchange Rates
4 Financial Statement Analysis
4-1 Financial Reporting Mechanism
4-2 Income Statements, Balance Sheets, and Cash Flow Statements
4-3 Financial Reporting Standards
4-4 Analysis of Financial Statements
4-5 Inventories
4-6 Long-Lived Assets
4-7 Income Taxes
4-8 Non-Current (Long-term) Liabilities
4-9 Financial Reporting Quality
4-10 Financial Analysis Techniques
4-11 Evaluating Financial Reporting Quality
5 Corporate Finance
5-1 Capital Budgeting
5-2 Cost of Capital
5-3 Measures of Leverage
5-4 Dividends and Share Repurchases
5-5 Corporate Governance and ESG Considerations
6 Equity Investments
6-1 Market Organization and Structure
6-2 Security Market Indices
6-3 Overview of Equity Securities
6-4 Industry and Company Analysis
6-5 Equity Valuation: Concepts and Basic Tools
6-6 Equity Valuation: Applications and Processes
7 Fixed Income
7-1 Fixed-Income Securities: Defining Elements
7-2 Fixed-Income Markets: Issuance, Trading, and Funding
7-3 Introduction to the Valuation of Fixed-Income Securities
7-4 Understanding Yield Spreads
7-5 Fundamentals of Credit Analysis
8 Derivatives
8-1 Derivative Markets and Instruments
8-2 Pricing and Valuation of Forward Commitments
8-3 Valuation of Contingent Claims
9 Alternative Investments
9-1 Alternative Investments Overview
9-2 Risk Management Applications of Alternative Investments
9-3 Private Equity Investments
9-4 Real Estate Investments
9-5 Commodities
9-6 Infrastructure Investments
9-7 Hedge Funds
10 Portfolio Management and Wealth Planning
10-1 Portfolio Management: An Overview
10-2 Investment Policy Statement (IPS)
10-3 Asset Allocation
10-4 Basics of Portfolio Planning and Construction
10-5 Risk Management in the Portfolio Context
10-6 Monitoring and Rebalancing
10-7 Global Investment Performance Standards (GIPS)
10-8 Introduction to the Wealth Management Process
5.4 Dividends and Share Repurchases Explained

5.4 Dividends and Share Repurchases - 5.4 Dividends and Share Repurchases Explained

Key Concepts

Dividends

Dividends are payments made by a corporation to its shareholders, usually in the form of cash or additional shares of stock. Dividends are a way for companies to distribute profits to their owners and can be a signal of financial health and stability.

Example: A company with $1 million in net income decides to pay out $0.50 per share in dividends to its 2 million outstanding shares. This results in a total dividend payout of $1 million.

Share Repurchases

Share Repurchases, also known as Stock Buybacks, occur when a company buys back its own shares from the market. This reduces the number of outstanding shares, which can increase earnings per share (EPS) and potentially boost the stock price.

Example: A company with 10 million outstanding shares and $50 million in cash decides to repurchase 1 million shares at $50 each. This reduces the outstanding shares to 9 million and increases EPS.

Cash Dividends

Cash Dividends are payments made in cash to shareholders. They are typically paid quarterly and are a common way for companies to return value to their shareholders. Cash dividends are usually preferred by income-focused investors.

Example: A company announces a quarterly cash dividend of $0.25 per share. If an investor holds 1,000 shares, they will receive a cash payment of $250.

Stock Dividends

Stock Dividends involve issuing additional shares of stock to existing shareholders instead of cash. This does not reduce the company's cash reserves but increases the number of outstanding shares, which can dilute earnings per share.

Example: A company with 1 million outstanding shares decides to issue a 5% stock dividend. This results in an additional 50,000 shares being distributed to shareholders, increasing the total outstanding shares to 1.05 million.

Dividend Policy

Dividend Policy refers to the strategy a company uses to determine how much of its earnings to pay out as dividends and how much to retain for reinvestment. A company's dividend policy can influence investor sentiment and stock price.

Example: A company with a stable cash flow and low growth prospects might adopt a high dividend payout ratio, paying out 70% of its earnings as dividends. Conversely, a high-growth company might retain all earnings to fund expansion.

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