Dividend Irrelevance Theory-Modigliani & Miller ( 1961 )

As Chapter 10 questions, if further evidence continues to surface that capital markets do not always behave in accordance with the efficient market hypothesis, then should we reject the research that has embraced the EMH as a fundamental assumption? In this regard we can return to earlier chapters of this book in which we emphasised that theories are abstractions of reality. Capital markets are made of individuals and as such it would not (or perhaps, should not) be surprising to find that the

An investor would invest in a security for the return. However that return comes with a premium, the Risk. The higher the risk an investor is willing to take the higher the returns would

This is because the market has all of the available information for a particular stock and will issue returns based on this information. As investor, you could never consistently get a better return than what the market is bearing because you could never consistently know more than the

The capital structure of a company changes the risks exposure highlighting the need to determine the impact of debt levels on financial risk (Pearson Learning, 2014). The dividend payout is the ratio of dividends per share to the earnings per share, and both ratios increased for the three years. The increase in the DPS rose at a decreasing rate resulting in slower growth in the dividend payout. The dividend per share is dependent on the total number of dividends paid out in an interim year, and the increase in the DPS was in line with the management’s efforts to reward the investors as the earnings improved. The dividend yield representing the dividend paid out relative to the share price, and the lower divided yield in December 2014 can be attributed to the higher share price hovering over $40, which was more than double the share price in the previous

The fear in cutting dividends though always is in the hands of the shareholders, where their fears could cause a large drop in stock price.

Such decisions may affect the company’s profitability today but judging from the fact that high risk means low stock price and vice-versa, high return waits in the future.

In this paper, a study on the Dividends Discount Model (DDM) will be explored and explained. The four main topics that this essay will be based around include what two common share valuation techniques are used, the dividend discount model and the use of a multiples approach, a discussion on the relative advantages and disadvantages of dividend discount model and a look into which model would produce the most accurate results and Why? With the relevant content, research, and analysis of these specific topics, an understanding of these methods and procedures will be the overall objective and purpose of this paper.

The Modigliani-Miller clearly postulates that the dividend policy is irrelevant. The value of the assets of FPL should be independent of the financial structure of the firm. Also, the choice of dividend payments or share repurchases should not influence the share price as both methods are ways to distribute cash to the shareholders. However, this is true only in the Modigliani-Miller world where there are no costs related to taxes or financial distress.

The dividends that stockholders receive and the value of their stock shares depend on the business’s profit performance. Managers’ jobs depend on living up to the business’s profit goals.

Despite the described superiority of the myopic loss aversion model to explain the equity premium puzzle, some of the economists still argue the ability of this model to resolve this phenomenon. Berkelaar and Kouwenberg explain their disagreement by the notion of the break-even effect.

Students will generally claim that dividends are valuable to shareholders, and that this decision is a big deal for EMI. This discussion motivates an introduction to the

Another key stream of the proposed carbon tax policy is to promise dividend to all individual Americans on an equal and quarterly basis. The proposal argues that this amount is sufficient to compensate increased financial burden on consumers due to the carbon tax. However, equal distribution of dividend may not be able to compensate appropriately because individuals are not worse off to the same extent by the carbon tax. This is because not all individuals earn the same level of income, and more importantly, the energy consumption has a negative relationship over income level.

Zero dividends are widely described as dividends and hence should not be excluded from the research, on that account the results from such studies are regarded as not reliable since the sample size is small.

Purpose – The purpose of this paper is to examine the Dickens et al. model of bank holding company dividend policy. They identified five explanatory factors in a sample of bank holding companies (BHCs). Banking companies typically pay larger dividends and more often than industrial firms. Investors often look at the dividends as being important return variables. Design/methodology/approach – In this study, a sample of 99 firms with 2006 data

They suggest that firms with more risky returns on assets pay lower dividends, all other things being equal.