One must remember that, while one group might well prefer capital gains, a second group of zero-tax investors may primarily be interested in dividends. This second group of investors includes universities, foundations, and private pension funds, all of which accrue no special tax advantages from capital gains as distinct from dividends. Sometimes a company will distinguish between a “regular” dividend and an “extra” dividend.
Although this distinction does not have any cash flow significance, it is an important means by which the directors can signal their intentions to stockholders. By labeling part of a dividend payment as an “extra”, the directors are indicating that they do not necessarily expect to continue those payments in future years. By declaring the remainder of the dividend payment as a regular payment, the directors indicate an intention to maintain this dividend for the foreseeable future. Extras tend to occur in the fourth quarter of a good earnings year.
When a dividend increase is logical for a company, given its earnings and its traditional payout target, then the mere fact that an increase has not been declared May sometimes be interpreted as evidence that management does not expect the current level of earnings to be maintained. On the other hand, if a dividend increase takes place at a time when it is not expected on the basis of the company’s historical behavior, the financial community may interpret this as evidence that management is more bullish about future prospects for the company than had previously been expected.
The Essay on Hampton Machine Tool Company
About The Company Hampton Machine Tool was established in 1915 and has been manufacturing machine tools since its foundation. Hampton company’s customer base is made up primarily of aircraft manufacturers and automobile manufactures in the St. Louis area. It experienced record production and profitability during the years. Sales and profitability declined in the mid-1970s with the withdrawal from ...
The dividend policy of a firm cannot be considered in isolation from its other financial policies. In particular, dividend policy is intimately connected with investment policy and financing policy. When a firm changes its dividend amount, it may, at the same time, have to change one or more of these other policies. In any particular year, it would be surprising if the amount of cash generated internally and the schedule of available investment opportunities were exactly as anticipated. Thus, some temporary adjustments are needed.
The firm can adjust either its dividend policy, its financing policy, or its investment policy. It will try to make the adjustments that are least costly to its long-term objectives. For industrial firms, changes in the amount of investments are the most common method of adjustment. In some cases, this can be done at relatively low cost by delaying the start of new long-term investment projects. Another alternative is to temporarily increase or decrease working capital Reference link: http://classof1. com/homework-help/finance-homework-help
