Tax Paper

When considering the likelihood of dividend reaping it is important to remember that
Companies have preferences with inclination to spending free cash flow and excess residuum sheet
Cash. Three of these choices argon effectively dividends: cash distributions, stock buybacks,
And debt retirements. The opposite choices relate to inherent capital projects and
Acquisitions. Given the low operational rates and the large supply of excess labor that
remember todays economy a surge of internal capital spending looks unlikely.
Acquisitions are possible but not with private equity firms. Most deals, when they
Happen, lead be strategic in nature, and must be accretive in honor to the acquirer or they
Will not occur. Put another(prenominal) way, the return from capital deployed in an acquisition must
Equal or exceed the acquiring firms cost of capital. Otherwise, such activity destroys
Shareholder value.
Today the economic climate and incorporate balance sheets in the non-financial sectors
Suggest excess capital will be returned to shareholders via dividend-based strategies.
Whats more the compensation system incentives in most companies encourage this
Outcome as well.



Whereas stock option plans can encourage retention of capital by
management for growth opportunities restricted stock units (RSUs) do not have that
bias. The latter(prenominal) equity award generally contains a provision whereby management
receives dividends on unvested stock as well as vested stock. It should be mentioned that
dividends on unvested stock are taxed at ordinary income rates. Therefore, to the extent
compensation processes are designed to drive behavior, the return of excess capital to
shareholders is heighten by this type of reward structure. Over the past some(prenominal) years,
stock option plans have been largely supplanted by RSU structures in most public companies.

Workcited
How stocks are paid out
www.ehow.com/info_7962680_stock-dividends-paid-out.html
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