Dividend cover and Dividend irrelevancy theory: Difference between pages

Revision as of 21:49, 12 November 2016

In financial theory dividend payments and policies should be irrelevant when financial markets are efficient.

But in practice decisions about dividend levels are important because of:

Their informational content. This informational content is known as signalling.
The potential to move closer to, or away from, a firm's optimal capital structure.
Possibly, clientele effects.

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-Profit attributable to ordinary shareholders &divide; Dividends.
+In financial theory dividend payments and policies should be irrelevant when financial markets are efficient.
+But in practice decisions about dividend levels are important because of:
-Dividend cover measures the safety or sustainability of the future dividend flow, from the perspective of the investor.
+#Their informational content. This informational content is known as ''[[signalling]]''.
+#The potential to move closer to, or away from, a firm's optimal capital structure.
+#Possibly, [[clientele]] effects.
-The greater the cover ratio, the greater the assumed likelihood that the firm paying the dividend will continue to be able to pay it in the future.
-In the situation where the cover ratio falls below 1.0, the dividend is said to be ''uncovered'' and it will not be sustainable at its previous level unless there is a recovery in the firm's profits.
-Also known as the dividend cover ratio.
 == See also ==
-* [[Cover ratio]]
+* [[Dividend]]
-* [[Dividend yield]]
+* [[Lintner]]
-* [[Dividends]]
+* [[Residual theory]]
-* [[DPS]]
+* [[Rights issue]]
+* [[Theoretical ex-rights price]]
-[[Category:Corporate_finance]]
+* [[Capital structure]]
+* [[Clientele]]
+*[[Signalling]]