Distinguish between dividends and share repurchases. Does the use of dividends and share repurchases vary across countries? Identify three industries with high dividend payouts.
Dividends refer to the payments made to shareholders by companies from earned profits after a particular financial period (Sharif et al., 2015). Usually, when the corporation earns profits, the profits are reinvested in the business and the remaining surplus profit is shared with the stakeholders in the form of dividends. Share purchase, on the other hand, is the investment units that are bought from companies for the ownership of the corporation. When one purchases a share from a company, he or she becomes a shareholder or stakeholder of the company. A share is used as a limited partnership or mutual funds that are in the form of an indivisible capital unit, entirely used to claim ownership in the company (Sharif et al., 2015). Apparently, the owners of a company are categorized based on the shares the individual owners have invested in the company. If one has invested many on many shares, then the percentage of dividends he will ear will be high since he is a large stake of the shareholder.
Shares and dividends repurchase are used by firms differently as it is a flexible way of allocating cash in the company (Grinblatt et al., 1984) The use of shares and dividends repurchase does not either vary in different countries. Globally, repurchase is never used as a substitute for dividends. Rather, repurchase is used depending on the structure and characteristics of the film in relation to profitability, the company size, cash flow, and other key considerations. For instance, companies with large finance holding have a good share of repurchase potential. ‘
Evidently, there are industries that have high dividends payout in the global stock market. Many investors, therefore, buy shares from the companies so as to get more profit in terms of dividends. Southwest Airlines (LUV), American Airlines (AAL) and ABB limited are a good example of such companies. Notably, these companies have not incurred losses on their net annual returns in the past three decades. Therefore, they end up selling their shares at a high price to generate more profit. The surplus profit is paid to the stakeholders in high dividends payout.
Grinblatt, M. S., Masulis, R. W., & Titman, S. (1984). The valuation effects of stock splits and stock dividends. Journal of financial economics, 13(4), 461-490.
Sharif, T., Purohit, H., & Pillai, R. (2015). Analysis of factors affecting share prices: The case of Bahrain stock exchange. International Journal of Economics and Finance, 7(3), 207-216.
by EssayRoyal, Dec. 10, 2019, 5:26 p.m.