Managing Shareholder Value

In a public listed company, the spread of shareholding is wide. Because of this diversified shareholder mix, any dividend payout will disappoint at least some of the shareholders. Therefore the main question is whether a company’s choice of dividend policy can affect its share price which in turn can increase shareholder value.

To answer the question, we need to understand the different schools of thought:

• Traditionally, we have the “ bird-in-the-hand view” that shareholders would like companies to pay high dividend. It augur well the thinking that “immediate” dividends over less certain and more distant capital gain;
• Another school takes the opposite stance whereby shareholders prefer capital gains over dividends and hence low payout ratios, because capital gains are taxed at a lower/zero rate than dividend; (more…)