of dividends on organizations and individual investors. The theory advanced by Gordon and Linter‚ establishes that there is a direct relationship between a firms dividend policy and its market value. Investors respond to receiving actual cash returns. Gordon and Linter referred to this as the “Bird in hand theory”- another name for dividend relevance (de Boyrie‚ 2001). According to the Hewitt Investment Group. “Gordon and Linter asserts that dividends received today are preferable to future dividends
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INTRODUCTION That report is a detailed review of dividend policy and whether or not could affect the market value of the company. When companies make profits‚ managers have to decide either to reinvest those profits for the good of company or either they could pay out the owners (shareholders) of the firm in dividends. Once they decide to pay dividends they may possibly establish a permanent dividend policy‚ which is the set of guidelines a company uses in order to decide how much of its profits
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that total return (k) is equal to dividend yield plus capital gains. Myron Gordon and John Lintner took this equation and assumed that k would decrease as a company’s payout increased. As such‚ as a company increases its payout ratio‚ investors become concerned that the company’s future capital gains will dissipate since the retained earnings that the company reinvests into the business will be less. Gordon and Lintner argued that investors value dividends more than capital gains when making decisions
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three different companies. Literature Review The first empirical study of dividend policy was provided by Lintner (1956)‚ who surveyed corporate managers to understand how they arrived at the dividend policy. Lintner found that an existing dividend rate forms a bench mark for the management. Companies’ management usually displayed a strong reluctance to reduce dividends. Lintner opined that managers usually have reasonably definitive target payout ratios over
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Prices”. American Economic Review‚ 54‚ 656-682. Gitman‚ L.J. 1985. Managerial Finance. New York: Harper and Row Publishers. Gitman‚ L.J. 2008. Principles of Management Finance‚ 5/E. New York: Harper Collins College Publishers. (What an old study?) Gordon‚ Myron J. 1962. “Dividends‚ Earnings‚ and Stock Price”. Review of Economics and Statistic‚ 41‚ 99-105. Gujarati‚ D. N. 1988. Basic Econometrics‚ McGraw-Hill‚ Inc. Hussainey‚ K.‚ Mgbame‚ C. O.‚ & Chijoke-Mgbame‚ A. M. 2011. “Dividend Policy and Share
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FPL An Overview FPL Group‚ Inc. is Florida’s largest electric utility company. In 1925‚ through the consolidation of numerous electric and gas companies‚ they formed Florida Power & Light Company (FP&L). FP&L grew steadily over the next 50 years until rising fuel costs‚ operating issues‚ and construction costs began to decrease profitability. In the mid-1980s‚ FPL diversified with four major acquisitions - Colonial Penn Life Insurance Company‚ Telesat Cablevision‚ Inc.‚ CBR Information Group
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CHAPTER ONE 1 INTRODUCTION The term dividend refers to that part of profits of a company which is distributed by the company among its shareholders. It is the reward of the shareholders for investments made by them in the shares of the company. The investors are interested in earning the maximum return on their investments and to maximize their wealth. A company‚ on the other hand‚ needs to provide funds to finance its long-term growth. If a company pays out as dividend most of what it earns
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the sense that it cannot affect shareholder value. The effect of any dividend policy can be offset by management adjusting the sale of new stock or by investors adjusting their dividend stream through stock purchases or sales. “Myron J. Gordon and John Lintner proposed this theory. Dividend relevance theory suggests that investors are generally risk averse and
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FIN 534 (Strayer) Financial Management Week 9 Quiz 8 Question 1 2 out of 2 points Which of the following statements about dividend policies is correct? Answer Selected Answer: The clientele effect suggests that companies should follow a stable dividend policy. Correct Answer: The clientele effect suggests that companies should follow a stable dividend policy. Question 2 2 out of 2 points If a firm adheres strictly to the residual dividend policy‚ the issuance of new common stock
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shareholders will prefer dividends as opposed to return of capital gain‚ the latter being more risky. According to the Modigliani–Miller dividend irrelevance theory‚ your dividend policy will not affect the value/risk of the firm. On the other hand‚ Gordon and Lintner believe a stock’s risk declines as dividends increase. These financial experts both present important theories to consider. Using Debt for Stock Repurchase One of the benefits of repurchasing stock is the signal it sends to investors. When
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