CHAPTER 6

DIVIDENDS AND SHARE REPURCHASES: BASICS1

George H. Troughton, CFA

Anthem, Arizona, U.S.A.

Gregory Noronha, CFA

Tacoma, Washington, U.S.A.

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• Describe regular cash dividends, extra dividends, stock dividends, stock splits, and reverse stock splits, including their expected effect on a shareholder’s wealth and a company’s financial ratios.
• Describe dividend payment chronology, including the significance of declaration, holder-of-record, ex-dividend, and payment dates.
• Compare share repurchase methods.
• Calculate and compare the effects of a share repurchase on earnings per share when (1) the repurchase is financed with the company’s excess cash and (2) the company uses funded debt to finance the repurchase.