Dividend Policy and Retained Earnings(Chapter 18).ppt

Dividend Policy and Retained Earnings(Chapter 18) Optimal Dividend Policy Conflicting Theories Other Dividend Policy Issues Residual Dividend Theory Stable Growth in Dividend Policy Some Additional Considerations Stock Dividends and Stock Splits Stock Repurchases Optimal Dividend Policy The optimal dividend policy should maximize the price of the firm’s stock holding the number of shares outstanding constant. A decision to increase dividends will raise D1 putting upward pressure on P0. Increasing dividends, however, means reinvesting fewer dollars, lowering g, and putting downward pre