Stock Dividend:

A dividend is money paid directly to an

investor in a company's stock. Some
publicly owned companies offer a
dividend with their stock, while others do
not. The choice of buying and owning a
stock that pays a dividend is up to the
individual investor, as there
are both positive and negative aspects to
consider. A company that offers a
dividend wit hits stock is often a larger,
more stable business in a field with little
growth or a slow, steady growth
potential.
When a company offers a dividend to its
stock holders, it is taking money that
could invested into the company, and
distributing it to shareholders as a
benefit of investing in the company.
Receiving a dividend is good for
investors, because they get a
guaranteed return on their investment in
the form of the money from the dividend.
A stock that returns a dividend is good as
an income investment or a long term
growth investment. This is because these
stocks tend to remain stable, and offer a
tangible monetary benefit to investors.
Some investors shy away from stocks
that offer a dividend for this very reason.
A company that gives its investor a
dividend is not using that money to
expand the business.
Therefore, a stock that gives a dividend
may be less likely to grow in value, or
may grow at a slower rate in comparison
to a company that does not offer a
dividend, but instead uses its profits to
expand or seek out new business
opportunities. Investors seeking
shorter term investments or rapid growth
tend to look for stocks that do not offer a
dividend. The dividend a company offers
to its shareholders is usually paid out
each quarter. The
amount of dividend is set at a certain
dollar value for each share of stock
owned. If you own 100 shares of a stock
which pays 1 US dollar (USD) per share
each year in dividend,
you will receive 25 USD in dividend every
three months. These quarterly payments
of 25 USD make the annual dividend 100
USD. Most companies that pay a dividend
also have
a dividend reinvestment program. With a
dividend reinvestment program, instead
of taking the dividends as payment, the
investor can choose to reinvest each
dividend payment and take the value of
the dividend in stock instead of cash. In
this case, the investor's stock value
would increase by 25 USD
the first quarter. Because the value of the
stock is now higher than before, the
dividend for the next quarter would
actually be higher than 25 USD, based on
the number of
additional shares that the first dividend
was able to purchase. By reinvesting
dividends, an investor can easily increase
his or her stock holdings.

Stock Split:

A stock split is similar to a stock dividend.

New shares are issued and the company's
assets and liabilities remain unchanged. If
a stock dividend is greater than 25%, it is
considered a stock split. A reason for a
stock split may be overpriced stock, and
issuing a two-for-one split will lower the
price and make the stock more
marketable. Also possible is a reverse
split, where the number of shares will
decrease and the price of shares will
increase.

Let's say that a board of directors feels it

is useful to the corporation if investors
know they can buy 100 shares of stock for
under $5,000. This means that the
directors will work to keep the selling
price of a share between $40 and $50 per
share. If the market price of the stock rises
to $80 per share, the board of directors can
move the market price of the stock back
into the range of $40 to $50 per share by
approving a 2-for-1 stock split. Such an
action will cause the total number of
shares outstanding to double and, in the
process, cause the market price to drop
from $80 down to $40 per share. For
example, if a corporation has 100,000
shares outstanding, a 2-for-1 stock split
will result in 200,000 shares outstanding.
Since the corporation's assets, liabilities,
and total stockholders' equity are the same
as before the stock split, doubling the
number of shares should bring the market
value per share down to approximately half
of its pre-split value.

Stock repurchase:
Stock repurchase (or share buyback) is the
reacquisition by a company of its own
stock. In some countries, including the U.S.
and the UK, a corporation can repurchase
its own stock by distributing cash to
existing shareholders in exchange for a
fraction of the company's outstanding
equity; that is, cash is exchanged for a
reduction in the number of shares
outstanding. The company either retires
the repurchased shares or keeps them as
treasury stock, available for re-issuance.

Under U.S. corporate law there are five

primary methods of stock repurchase: open
market, private negotiations, repurchase
'put' rights, and two variants of self-tender
repurchase: a fixed price tender offer and a
Dutch auction. There has been a meteoric
rise in the use of share repurchases in the
U.S. in the past twenty years, from $5
billion in 1980 to $349 billion in 2005
Methods:

Open-market
The most common share repurchase
method in the United States is the open-
market stock repurchase, representing
almost 95% of all repurchases. A firm may
or may not announce that it will repurchase
some shares in the open market from time
to time as market conditions dictate and
maintains the option of deciding whether,
when, and how much to repurchase. Open-
market repurchases can span months or
even years. There are, however, daily buy-
back limits which restrict the amount of
stock that can be bought over a particular
time interval.

Types:

Selective buy-backs

In broad terms, a selective buy-back is one

in which identical offers are not made to
every shareholder, for example, if offers
are made to only some of the shareholders
in the company. The scheme must first be
approved by all shareholders, or by a
special resolution (requiring a 75%
majority) of the members in which no vote
is cast by selling shareholders or their
associates. Selling shareholders may not
vote in favour of a special resolution to
approve a selective buy-back. The notice to
shareholders convening the meeting to
vote on a selective buy-back must include
a statement setting out all material
information that is relevant to the proposal,
although it is not necessary for the
company to provide information already
disclosed to the shareholders, if that would
be unreasonable.

Other types

A company may also buy back shares held

by or for employees or salaried directors of
the company or a related company. This
type of buy-back, referred to as an
employee share scheme buy-back, requires
an ordinary resolution. A listed company
may also buy back its shares in on-market
trading on the stock exchange, following
the passing of an ordinary resolution if over
the 10/12 limit[5]. The stock exchange’s
rules apply to on-market buy-backs. A
listed company may also buy unmarketable
parcels of shares from shareholders (called
a minimum holding buy-back). This does
not require a resolution but the purchased
shares must still be cancelled.

Passive and active dividend policies:

Passive dividend policy:

As long as the firm is faced with

investment projects having returns
exceeding those that are required i.e.
positive-NPV, the firm will use earnings
plus the amount of senior securities the
increase in the equity base will support, to
finance these projects. If the firm has
earnings left after financing all acceptable
investment opportunities, these earnings
would than be distributed to shareholders
in the form of cash dividends.
If the number of acceptable investment
opportunities involves a total dollar
amount that exceeds the amount of
retained earnings plus the senior securities
these retained earnings will support, the
firm would finance the excess needs with a
combination of a new equity issue and
senior securities.

This type of policy is known as passive

dividend policy.

Active dividend policy:

This is reverse policy to passive dividend

policy, owned by any particular firm to pay
dividends to its shareholders.

Shareholders dividend payments are not

dependent on the investment projects of
the firm. Firm pays dividend to its
shareholders actively regardless of any
investment opportunity needs. Firm finance
any investment opportunities needs by
profit earned by a firm and if the
requirement for cash is more than the
profit earned than the firm sell new stock
in the amount of these dividends in order
to finance the investment projects .

This type of policy is known as active

dividend policy