Essay Topic:

Comparing a regular cash dividend with a periodic share repurchase.

Essay Questions:

How is regular cash dividend different from periodic share repurchase? How does the company act when its stocks are undervalued? In what way do stockholders deal with dividends?

Thesis Statement:

The distributed cash can include the growth of capital and capital profit in addition to the dividends. Share repurchase is a program, in accordance with which a company ransoms its own stocks on the open market.

Dividends Essay

Introduction: Comparing a regular cash dividend with a periodic share repurchase requires a deep understanding of each term. Regular cash dividends are dividends paid to company’s shareholders in cash. The amount of dividends, as a rule, is based on the profit and income under taxation. The distributed cash can include the growth of capital and capital profit in addition to the dividends. Share repurchase is a program, in accordance with which a company ransoms its own stocks on the open market.

The company usually resorts to share repurchase when its stocks are undervalued. Share repurchase decreases the quantity of stocks that already are in the market, increases the income from the stocks and raises the market value of papers that remain with the stockholders of the company. To own economically stable stocks of a high price is always connected with certain advantages. And if it goes about major shareholders it is the perfect way for them. But from the ordinary consumers point of view regular cash dividend may have some advantages over the periodic share repurchase. In the first place because shareholders get “live money” and can feel the profit in their own hands. Therefore this form of getting dividends can be more appealing to a certain group of shareholders that are looking for instant profit. Nevertheless an objective look of a share trader shows that share repurchase is better in the long run. Shareholders also can deal with stock dividends. Stock dividends are dividends paid not in cash, but in stocks. It deals with the remittance of the unallotted profit to the account of the authorized capital without changing the nominal value of the stocks. Sometimes dividends can be paid in the stocks of another company, for example, a branch of a bigger company. So the dividends are paid in stocks unlike the cash dividends we discussed above. Stock dividends allow the shareholders to acquire stocks of different companies, therefore enlarge the influence on the companies and advance along the market.

Conclusion: The more stock owned – the more dividends received. Sometimes companies change their position on market or their stock value by different means. As an example we can observe stock splits. Stock split occurs, when the firm lets out new stocks and at the same moment reduces the current market price of each stock up to a level that is proportional to a level of the price of the stock before the split. For example, if a stock before the 2 to 1 split was $100, after the split its market price will be $50, and the number of stocks owned by the shareholders will be doubled. It is a strategy step that can be taken by a company.. Such actions as stock split are not very desirable for the shareholders. Of course it can bring a lot of dividends if the price of the stocks rises. But if it does not they may stay with their stocks doubled, but not worth of anything. Everything is very individual for each company. And a stock holder should always take in account a lot of factors before making any actions. Smart stock management can lead to a prosperous activity on the market.