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Residual dividend approach

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Definition of Residual dividend approach

Residual Dividend Approach Image 1

Residual dividend approach

An approach that suggests that a firm pay dividends if and only if acceptable
investment opportunities for those funds are currently unavailable.



Related Terms:

Cash dividend

A dividend paid in cash to a company's shareholders. The amount is normally based on
profitability and is taxable as income. A cash distribution may include capital gains and return of capital in
addition to the dividend.


cash dividend

Payment of cash by the firm to its shareholders.


constant-growth dividend discount model

Version of the dividend discount model in which dividends grow at a constant rate.


Cross-sectional approach

A statistical methodology applied to a set of firms at a particular point in time.


Cum dividend

With dividend.



Cumulative dividend feature

A requirement that any missed preferred or preference stock dividends be paid
in full before any common dividend payment is made.


Debt service parity approach

An analysis wherein the alternatives under consideration will provide the firm
with the exact same schedule of after-tax debt payments (including both interest and principal).


Residual Dividend Approach Image 2

Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.


Dividend

A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock
selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.


Dividend

A payment a company makes to stockholders. Earnings before income tax. The profit a company made
before income taxes.


Dividend

The payment of after-tax profits to shareholders as their share of the profits of the business for an accounting period.


Dividend

A payment made to shareholders that is proportional to the number of shares
owned. It is authorized by the Board of Directors.


dividend

Periodic cash distribution from the firm to its shareholders.


Dividend

As the term dividend relates to a corporation's earnings, a dividend is an amount paid per share from a corporation's after tax profits. Depending on the type of share, it may or may not have the right to earn any dividends and corporations may reduce or even suspend dividend payments if they are not doing well. Some dividends are paid in the form of additional shares of the corporation. dividends paid by Canadian corporations qualify for the dividend tax credit and are taxed at lower rates than other income.
As the term dividend relates to a life insurance policy, it means that if that policy is "participating", the policy owner is entitled to participate in an equitable distribution of the surplus earnings of the insurance company which issued the policy. Surpluses arise primarily from three sources:
1) the difference between anticipated and actual operating expenses,
2) the difference between anticipated and actual claims experience, and
3) interest earned on investments over and above the rate required to maintain policy reserves. Having regard to the source of the surplus, the "dividend" so paid can be considered, in part at least, as a refund of part of the premium paid by the policy owner.
Life insurance policy owners of participating policies usually have four and sometimes five dividend options from which to choose:
1) take the dividend in cash,
2) apply the dividend to reduce current premiums,
3) leave the dividends on deposit with the insurance company to accumulate at interest like a savings plan,
4) use the dividends to purchase paid-up whole life insurance to mature at the same time as the original policy,
5) use the dividends to purchase one year term insurance equal to the guaranteed cash value at the end of the policy year, with any portion of the dividend not required for this purpose being applied under one of the other dividend options.
NOTE: It is suggested here that if you have a participating whole life policy and at the time of purchase received a "dividend projection" of incredible future savings, ask for a current projection. Life insurance company's surpluses are not what they used to be.


Dividend

Unlike dividends which are paid to company shareholders, participating insurance policy dividends are not based on the company's overall profits. Rather, they are determined by grouping policies by type and country of issue and looking at how each class contributes to the company's earnings and surplus.


Dividend clawback

With respect to a project financing, an arrangement under which the sponsors of a project
agree to contribute as equity any prior dividends received from the project to the extent necessary to cover
any cash deficiencies.


Residual Dividend Approach Image 3

Dividend clientele

A group of shareholders who prefer that the firm follow a particular dividend policy. For
example, such a preference is often based on comparable tax situations.


dividend discount model

Computation of today’s stock price which states that share value equals the present value of all expected future dividends.



Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.


dividend growth method

a method of computing the cost
of common stock equity that indicates the rate of return
that common shareholders expect to earn in the form of
dividends on a company’s common stock


Dividend growth model

A model wherein dividends are assumed to be at a constant rate in perpetuity.


Dividend income

Income that a company receives in the form of dividends on stock in other companies that it holds.


Dividend limitation

A bond covenant that restricts in some way the firm's ability to pay cash dividends.


Dividend payout ratio

Percentage of earnings paid out as dividends.


dividend payout ratio

Computed by dividing cash dividends for the year
by the net income for the year. It’s simply the percent of net income distributed
as cash dividends for the year.


dividend payout ratio

Percentage of earnings paid out as dividends.


Dividend policy

An established guide for the firm to determine the amount of money it will pay as dividends.


Dividend Policy

This policy governs Canada Life's actions regarding distribution of dividends to policyholders. It's goal is to achieve a dividend distribution that is equitable and timely, and which gives full recognition of the need to ensure the ongoing solidity of the company. It also specifies that distribution to individual policyholders must be equitable between dividend classes and policyholder generations, and among policyholders within any class.



Dividend rate

The fixed or floating rate paid on preferred stock based on par value.


Dividend reinvestment plan (DRP)

Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the purchase of additional shares at a
discount to market price. dividend reinvestment plans allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the
holder.


Dividend rights

A shareholders' rights to receive per-share dividends identical to those other shareholders receive.


Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.


dividend yield ratio

Cash dividends paid by a business over the most
recent 12 months (called the trailing 12 months) divided by the current
market price per share of the stock. This ratio is reported in the daily
stock trading tables in the Wall Street Journal and other major newspapers.


Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.


Dividends

Amounts paid to the owners of a company that represent a share of the income of the company.


Dividends

Profits paid out to shareholders by a corporation.


Dividends per share

Amount of cash paid to shareholders expressed as dollars per share.


Dividends per share

dividends paid for the past 12 months divided by the number of common shares
outstanding, as reported by a company. The number of shares often is determined by a weighted average of
shares outstanding over the reporting term.


Ex-dividend

This literally means "without dividend." The buyer of shares when they are quoted ex-dividend
is not entitled to receive a declared dividend.


Ex-dividend date

The first day of trading when the seller, rather than the buyer, of a stock will be entitled to
the most recently announced dividend payment. This date set by the NYSE (and generally followed on other
US exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is
marked with an x in newspaper listings on that date.


ex-dividend date

Date that determines whether a stockholder is entitled to a dividend payment; anyone holding stock before this date is entitled to a dividend.


Extra or special dividends

A dividend that is paid in addition to a firm's "regular" quarterly dividend.


Homemade dividend

Sale of some shares of stock to get cash that would be similar to receiving a cash dividend.


Indicated dividend

Total amount of dividends that would be paid on a share of stock over the next 12 months
if each dividend were the same amount as the most recent dividend. Usually represent by the letter "e" in
stock tables.


information content of dividends

dividend increases send good news about cash flow and earnings. dividend cuts send bad news.


Liquidating dividend

Payment by a firm to its owners from capital rather than from earnings.


MM dividend-irrelevance proposition

Theory that under ideal conditions, the value of the firm is unaffected by dividend policy.


net realizable value approach

a method of accounting for by-products or scrap that requires that the net realizable value of these products be treated as a reduction in the cost of the primary products; primary product cost may be reduced by decreasing either
(1) cost of goods sold when the joint products are sold or
(2) the joint process cost allocated to the joint products


Optimization approach to indexing

An approach to indexing which seeks to Optimize some objective, such
as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.


Perfect market view (of dividend policy)

Analysis of a decision on dividend policy, in a perfect capital
market environment, that shows the irrelevance of dividend policy in a perfect capital market.


Preferred Stock Stock that has a claim on assets and dividends of a corporation that are prior

to that of common stock. Preferred stock typically does not carry the right to vote.


realized value approach

a method of accounting for byproducts or scrap that does not recognize any value for these products until they are sold; the value recognized
upon sale can be treated as other revenue or other income


Residual assets

Assets that remain after sufficient assets are dedicated to meet all senior debtholder's claims in full.


Residual claim

Related: equity claim


residual income

the profit earned by a responsibility center that exceeds an amount "charged" for funds committed to that center


residual income

Also called economic value added. Profit minus cost of capital employed.


Residual income (RI)

The profit remaining after deducting from profit a notional cost of capital on the investment in a business or division of a business.


Residual losses

Lost wealth of the shareholders due to divergent behavior of the managers.


Residual method

A method of allocating the purchase price for the acquisition of another firm among the
acquired assets.


Residual risk

Related: unsystematic risk


Residual value

Usually refers to the value of a lessor's property at the time the lease expires.


Residual Value

The value attributed to a company to represent all future cash flows
after the end of the forecast period


Residual Value

Typically estimated based on the present value of the after-tax cash flows expected to be earned after the forecast period.


Residuals

1) Parts of stock returns not explained by the explanatory variable (the market-index return). They
measure the impact of firm-specific events during a particular period.
2) Remainder cash flows generated by pool collateral and those needed to fund bonds supported by the collateral.


Risk premium approach

The most common approach for tactical asset allocation to determine the relative
valuation of asset classes based on expected returns.


Signaling approach

approach to the determination of the optimal capital structure asserting that insiders in a
firm have information that the market does not have; therefore, the choice of capital structure by insiders can
signal information to outsiders and change the value of the firm. This theory is also called the asymmetric
information approach.


Signaling view (on dividend policy)

The argument that dividend changes are important signals to investors
about changes in management's expectation about future earnings.


Special dividend

Also referred to as an extra dividend. dividend that is unlikely to be repeated.


Stock dividend

Payment of a corporate dividend in the form of stock rather than cash. The stock dividend
may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders.
Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock
dividends are not taxed until sold.


stock dividend

Distribution of additional shares to a firm’s stockholders.


Stratified sampling approach to indexing

An approach in which the index is divided into cells, each
representing a different characteristic of the index, such as duration or maturity.


Tax differential view ( of dividend policy)

The view that shareholders prefer capital gains over dividends,
and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.


Traditional view (of dividend policy)

An argument that "within reason," investors prefer large dividends to
smaller dividends because the dividend is sure but future capital gains are uncertain.


Variance minimization approach to tracking

An approach to bond indexing that uses historical data to
estimate the variance of the tracking error.


With dividend

Purchase of shares in which the buyer is entitled to the forthcoming dividend. Related: exdividend.



 

 

 

 

 

 

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