Learning Outcome Statements

1. Dividend policy and company value: theory

a. compare theories of dividend policy and explain implications of each for share value given a description of a corporate dividend action;

b. describe types of information (signals) that dividend initiations, increases, decreases, and omissions may convey;

c. explain how clientele effects and agency issues may affect a company's payout policy;

2. Factors affecting dividend policy

d. explain factors that affect dividend policy;

e. calculate and interpret the effective tax rate on a given currency unit of corporate earnings under double taxation, dividend imputation, and split-rate tax systems;

3. Payout policies

f. compare stable dividend, constant dividend payout ratio, and residual dividend payout policies, and calculate the dividend under each policy;

g. explain the choice between paying cash dividends and repurchasing shares;

h. describe broad trends in corporate dividend policies;

4. Analysis of dividend safety

i. calculate and interpret dividend coverage ratios based on 1) net income and 2) free cash flow;

j. identify characteristics of companies that may not be able to sustain their cash dividend.