Cash dividend
A payment of cash to shareholders. The share price falls by about the amount paid on the ex-dividend date, so without taxes or signals holders are no better off than after a buyback of the same size.
Where you will meet it
Cash dividend appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Explain the expected impact on shareholder wealth and on a company's financial ratios of cash dividends (regular, extra or liquidating), stock dividends, reverse stock splits and stock splits
“In a frictionless market no payout changes shareholder wealth: a cash dividend moves value from the company to the holder, and the share price drops by about the dividend on the ex-date.”
- Outline how corporate payout policies have broadly changed over time
“In several developed markets, including the US, the proportion of listed companies paying regular cash dividends has fallen over the long run, even as the companies that do pay tend to be large and mature.”
- Weigh up returning cash through dividends against buying back shares
“With no taxes or information effects, a cash dividend and a repurchase of the same total amount leave shareholders equally well off.”
See also
Practise it
Practise cash dividend until it is automatic: questions that explain every wrong option.
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