Share buyback is the process by which a company repurchases its own shares from the investors. It results in a decrease in the total number of outstanding shares which in turn increases the value of shares.Companies may tend to buy shares back for a host of reasons. Some of the reasons for share buyback are as follows −Too Much Cash with Very Few Investment OpportunitiesMature companies that have with too much cash on their books but too few opportunities to invest money can resort to share buyback in order to increase the value of shares. The expense in the form ... Read More

It has been observed that most shareholders prefer the stability of dividend payouts. The firms may choose to pay dividends in regular intervals to satisfy the needs of the shareholders. Although the amount of dividend paid may change a little from year to year, payouts made every year is usually considered a wise policy.There are three forms of stability of dividends −Constant Dividend Per ShareConstant PayoutConstant Dividend Per Share Plus Extra dividendNow, let's analyze each of these forms in detail.Constant Dividend Per ShareIn some countries, companies prefer to pay dividends which are a portion of the paid-up capital. It is ... Read More

Book Building is a method of pricing the shares in the market. There are usually two types of share pricing methods −The Fixed Priced Method −The price of shares when issued remains constant and fixed. The price is usually mentioned before the IPO and the investors are aware of the fixed price of each share.The Book Building Method − There is no fixed price. Instead, there are limits (a lowest and the highest price) in which the shares are traded. When the IPO takes place, the issuers of the securities adjust the price depending on the demand of the shares ... Read More

Walter's model is one of the most important theories of dividend in financial management. Proposed by Professor James E. Walter, the model states that the dividend policy is a precursor of the value of a company. As companies pay dividends depending on the earnings, the payout of dividends can show how much the company was valued.Walter's model is based on the relationship between a company's Internal Rate of Return (IRR) and the Cost of Capital (CoC). These two factors are used to find the dividend theory that will reflect the want of the company to maximize the shareholder's wealth. As ... Read More

The companies that pay regular dividends generally use informational content to promote their status in the market. A company that pays regular dividends increasingly is appreciated more by investors which helps the company in collecting more benefits in terms of investment by the lenders, debtors, and investors in the market.Therefore, companies that pay regular dividends use the information in their favor to increase the share prices or to attract more investment. This process of dividend signaling to investors is known as the dividend signaling hypothesis.How Does Dividend Signaling Help Companies?The MM model suggests that a company that is strong enough ... Read More

According to the Miller Modigliani model of dividend theory, shareholders need not depend solely on dividends provided by the parent company to raise cash. They can sell their shares in the market to get the money they want. This is known as a Homemade Dividend because the part of cash generated in the process is not like regular methods. Instead, it is more like a homemade situation which lets the shareholders earn the cash.After the execution of a homemade dividend, shareholders will be left with less rights on the given company and the rights will be transferred to a new ... Read More

Companies use their net earnings either to keep them as retained earnings or to distribute them as dividends. The need for retained earnings or dividend payout is solely a matter of management's decision. However, in the case of a conflict to choose between the two, it is up to the dividend policy of the firm that is created before earning a net income.The objectives of a company's dividend policy can be divided into two major parts.The Company's Need for Funding its Future ProjectsFirms may use the net earnings as retained earnings to fund their future projects.As retained earnings have some ... Read More

Myron Gordon proposed a dividend model that included some more assumptions than the Walter's model. Gordon's model increased the assumptions of Walter's model and it reflected the evaluation of projects of those firms that have palpable tax and cost of capital greater than growth rate.Gordon's model has all the assumptions of Walter's model. In addition, it has three more assumptions which include −No Taxes − No corporate taxes should exist with the firm.Constant Retention Ratio − The Retention ratio is constant and does not change with changing income or expenses.The cost of capital is greater than the growth rate. In ... Read More

John Lintner was a professor at the Harvard Business School who had researched on the factors that guide a company's dividend payout policy. Lintner came up with a formula for determining an optimal corporate dividend policy. His dividend policy model is founded on the principle that all companies tend to grow the dividend payouts to a target level and this process starts slowly in the beginning but takes a certain speed with passing time. This speed is known as the speed of adjustment.However, it has also been observed that there is a danger in increasing the speed of adjustment abruptly. ... Read More

What are Ordinary Shares?Ordinary shares are tools that provide the investors the ownership rights to a company. There are two types of shares available for purchase −Ordinary SharesPreference SharesPreference shares are treated before the ordinary shares in case a company goes into liquidation.Attributes of Ordinary SharesInvestors can buy or sell ordinary shares anytime they wish in the share market. The share market is therefore the trading hub of ordinary shares and the shares of all listed companies are traded in the markets.Ordinary shares are the source of permanent capital for a company.Ordinary shares do not have a maturity date.The price ... Read More