Aswath Damodaran
1
!"#$!%&%' )*+, #- #," -.%"!+/ 0&1&0"%0 2-3&)4 )56789:;< =59 > ?8@; A8?;:F <>5AG?5D=;F
’
”
H:F<> 2F:9A:7D;< 2 Maximize the value of the business (fir m)
The Investment Decision Invest in assets that earn a return greater than the minimum acceptable hurdle rate
The hurdle rate should reflect the riskiness of the investment and the mix of debt and equity used to fund it.
Aswath Damodaran
The return should reflect the magnitude and the timing of the cashflows as welll as all side effects.
The Financing Decision Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations
The optimal mix of debt and equity maximizes firm value
The right kind of debt matches the tenor of your assets
The Dividend Decision If you cannot find investments that make your minimum acceptable rate, return the cash to owners of your business
How much cash you can return depends upon current & potential investment opportunities
How you choose to return cash to the owners will depend on whether they prefer dividends or buybacks
2
H:F<> 2F:9A:7D;< 2 Maximize the value of the business (fir m)
The Investment Decision Invest in assets that earn a return greater than the minimum acceptable hurdle rate
The hurdle rate should reflect the riskiness of the investment and the mix of debt and equity used to fund it.
Aswath Damodaran
The return should reflect the magnitude and the timing of the cashflows as welll as all side effects.
The Financing Decision Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations
The optimal mix of debt and equity maximizes firm value
The right kind of debt matches the tenor of your assets
The Dividend Decision If you cannot find investments that make your minimum acceptable rate, return the cash to owners of your business
How much cash you can return depends upon current & potential investment opportunities
How you choose to return cash to the owners will depend on whether they prefer dividends or buybacks
2
+>;7< >5 >?; 0:@:=;9= 0;A:<:59I 3 How much did you borrow Cashflows to Debt (Principal repaid, Interest Expenses) Cashflow from Operations
How good are your investment choices Reinvestment back into the business What is a reasonable cash balanc
Cashflows from Operations to Equity Investors
Cash held back by the company
Cash available for return to stockholders
What do your stockholders prefer? Stock Buybacks Cash Paid out
Dividends
Aswath Damodaran
3
&B 0:@:=;9=< 8F;
!"#"$%&$ ()*&+%, *- ./ 0123*&"%, TKBKKL
SKBKKL
RKBKKL
QKBKKL &9AF;8<; PKBKKL
OKBKKL
0;AF;8<; %5 A?89U;
NKBKKL
MKBKKL
KBKKL
Aswath Damodaran
4
#?; D8<> VW8F>;F 5E NKKT 7W>
5 >?; >;<>BB %W6X;F 5E +Y2 QKK A56789:;< >?8>I 5
Quarter Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008
Aswath Damodaran
Dividend Increase Dividend initiated Dividend decrease Dividend suspensions 102 1 1 1 63 1 1 5 59 2 2 0 63 7 4 2 93 3 7 4 65 0 9 0 45 2 6 8 32 0 17 10
5
&&B 0:@:=;9=< >;9= >5 E5DD5Z ;8F9:9U< 6
!"# %&&' ()*)+,-+. /-+ 0/1-)-2. 3 456& 78 9&4: MNKBKK
MKKBKK
TKBKK
RKBKK
"8F9:9U< 0:@:=;9=<
PKBKK
NKBKK
KBKK
4 M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M N N N N N N N N N N N N N N ; [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ K K K K K K K K K K K K K K 8 R R R R R R R R R R S S S S S S S S S S T T T T T T T T T T [ [ [ [ [ [ [ [ [ [ K K K K K K K K K K M M M M F K M N O P Q R S T [ K M N O P Q R S T [ K M N O P Q R S T [ K M N O P Q R S T [ K M N O P Q R S T [ K M N O
Aswath Damodaran
6
&&&B *F; 8\;A>;= XC >8] D8Z
;- 7<, =/.7 >?/17,1 8@ 9&49 !
!
*< >?; 75<<:X:D:>C 5E >8] F8>;< F;@;FJ9U X8AG >5 7F;^NKKO D;@;D< F5<;_ NOO A56789:;< 78:= 5W> `OM X:DD:59 :9 =:@:=;9=?;<; A56789:;<_ MKM ?8= :9<:=;F ?5D=:9U< :9 ;]A;<< 5E NKL 5E >?; 5W><>89=:9U <>5AGB
&1B a5F; 89= 65F; bF6< 8F; XWC:9U X8AG <>5AG_ F8>?;F >?89 78C =:@:=;9=
Stock Buybacks and Dividends: Aggregate for US Firms - 1989-2013 $600,000.00
$500,000.00
$400,000.00
s k c a b y u B $300,000.00 & s d n e d i v $200,000.00 i D $
$100,000.00
$1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20032004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Stock Buybacks
Aswath Damodaran
Dividends
8
1B *9= >?;F; 8F; =:\;F;9A;< 8AF5<< A5W9>F:;
Aswath Damodaran
9
a;8
!
!
0:@:=;9= 28C5W> c 0:@:=;9= &9A56; !
a;8?; 7;FA;9>8U; 5E ;8F9:9U< >?8> >?; A56789C 78C< :9 =:@:=;9=<
!
&E >?; 9;> :9A56; :< 9;U8J@;_ >?; 78C5W> F8J5 A8995> X; A567W>;=B
0:@:=;9= 4:;D= c 0:@:=;9=< 7;F 5AG 7F:A; !
a;8?; F;>WF9 >?8> 89 :9@;<>5F A89 68G; EF56 =:@:=;9=< 8D59;
!
e;A56;< 78F> 5E >?; ;]7;A>;= F;>WF9 59 >?; :9@;<>6;9>B
Aswath Damodaran
10
0:@:=;9= 28C5W> !8J5< 11
()*)+,-+ #/A8?7 B/C8. )- 9&4D MTBKKL MRBKKL MPBKKL MNBKKL MKBKKL
'D5X8D $+
TBKKL RBKKL PBKKL NBKKL KBKKL K^MKL
MK^NKL
Aswath Damodaran
NK^OKL
OK^PKL
PK^QKL
QK^RKL
RK^SKL
SK^TKL
SK^[KL
[K^MKKL
fMKKL
11
0:@:=;9= 4:;D=
()*)+,-+ E),=+. )- 9&4D MTBKKL MRBKKL MPBKKL MNBKKL MKBKKL 'D5X8D TBKKL
$+
RBKKL PBKKL NBKKL KBKKL
Aswath Damodaran
12
13
Aswath Damodaran
0:@:=;9= 4:;D=< 89= 28C5W> !8J5? )D8<<;< 14
!"#"$%&$ 4"%5$, *&$ 6*718- 9*:1,; <7 =>1?-) (5*,, QKBKKL
PBKKL
PQBKKL
OBQKL
PKBKKL OBKKL OQBKKL NBQKL
OKBKKL NQBKKL
NBKKL
0:@:=;9= 28C5W> F8J5 0:@:=;9= 4:;D=
NKBKKL
MBQKL
MQBKKL MBKKL MKBKKL KBQKL
QBKKL KBKKL
KBKKL K^OL
Aswath Damodaran
O^QL
Q^MKL
MK^MQL
MQ^NKL
NK^NQL
fNQL
14
0:@:=;9= 25D:AC/ 0:<9;C_ 18D;_ #8>8 a5>5F<_ e8:=W 89= 0;W>
Disney Dividend Yield - Last 12 months Dividend Payout ratio - Last 12 months Dividend Yield - 2008-2012 Dividend Payout - 2008-2012
Aswath Damodaran
Vale
Tata Motors
Baidu
Deutsche Bank
1.09%
6.56%
1.31%
0.00%
1.96%
21.58%
113.45%
16.09%
0.00%
362.63%
1.17%
4.01%
1.82%
0.00%
3.14%
17.11%
37.69%
15.53%
0.00%
37.39%
15
#?F;; +A?55D< -E #?5WU?> -9 0:@:=;9=< MB
&E >?;F; 8F; 95 >8] =:<8=@89>8U;< 8<<5A:8>;= Z:>? =:@:=;9=< Y A56789:;< A89 :<5AG_ 8> 95 :<_ >5 F8:<; ;VW:>C_ Z?;9;@;F 9;;=;= ()*)+,-+. +8 -87 F/G,1H /-+ +)*)+,-+ I8=)JA +8,. -87 /K,J7 */=?,L
NB
&E =:@:=;9=< AF;8>; 8 >8] =:<8=@89>8U; E5F :9@;<>5F< hF;D8J@; >5 A87:>8D U8:9
OB
&E =:@:=;9=< AF;8>; 8 >8] 8=@89>8U; E5F :9@;<>5F< hF;D8J@; >5 A87:>8D U8:95AG?5D=;F< D:G; =:@:=;9=< ()*)+,-+. /1, 288+H /-+ )-J1,/.)-2 +)*)+,-+. N)== )-J1,/., */=?,
Aswath Damodaran
16
#?; X8D89A;= @:;Z75:9> 17
!
!
&E 8 A56789C ?8< ;]A;<< A86;9> 5775F>W9:J;< h%21fKi_ F;>WF9:9U 659;C >5 <>5AG?5D=;F< h=:@:=;9=< 5F <>5AG F;7WFA?8<; ?8@; ;]A;<< A86;9> 5775F>W9:J;< h%21fKi_ F;>WF9:9U 659;C >5 <>5AG?5D=;F< h=:@:=;9=< 5F <>5AG F;7WFA?8<;
Aswath Damodaran
17
#?; 0:@:=;9=< =59 > 68j;F ?;<:< ’
18 ! !
#?; a:DD;F^a5=:UD:89: ,C75>?;<: 8\;A> @8DW; e8<:
!
!
!
&E 8 bF6k< :9@;<>6;9> 75D:A:;< h89= ?;9A; A8 A?89U;_ >?; @8DW; 5E >?; bF6 A8995> A?89U; 8< :> A?89U;< =:@:=;9= Z:DD ?8@; >5 :<C >5 EW9= >?; <86; 7F5m;A> Z:DD F;=WA; ;]7;A>;= 7F:A; 877F;A:8J59 59 >?; <>5AG XW> :> Z:DD X; 5\<;> XC 8 ?:U?;F =:@:=;9= C:;D=B &E Z; :U95F; 7;F<598D >8];<_ :9@;<>5F< ?8@; >5 X; :9=:\;F;9> >5 F;A;:@:9U ;:>?;F =:@:=;9=< 5F A87:>8D U8:9
$9=;FDC:9U *<8] =:\;F;9A;< >5 :9@;<>5F< X;>Z;;9 =:@:=;9=< 89= A87:>8D U8:955 6WA? :9 A8?;C A89 :<5AG_ Z:>? 95 l5>8J59 A5<>< 5F <:U98D:9U A59<;VW;9A;<_ >5 F;7D8A; >?:< A855 D:jD; :9 =:@:=;9=<_ >?;C =5 95> W<; >?; ;]A;<< A8< 5F 8AVW:<:J59
Aswath Damodaran
18
&&B #?; 0:@:=;9=< 8F; X8= ?; ;@:=;9A; >5 X8AG >?;6 W7I “
”
19
@*A >*-%, 1& $"#"$%&$, *&$ 0*3"-*5 +*"&,B ./ MKKBKKL [KBKKL TKBKKL SKBKKL RKBKKL QKBKKL PKBKKL OKBKKL NKBKKL MKBKKL KBKKL
1 9 1 6
1 9 1 8
1 9 2 0
1 9 2 2
1 9 2 4
1 9 2 6
1 9 2 8
1 9 3 0
1 9 3 2
1 9 3 4
1 9 3 6
1 9 3 8
1 9 4 0
1 9 4 2
1 9 4 4
1 9 4 6
1 9 4 8
1 9 5 0
1 9 5 2
1 9 5 4
1 9 5 6
1 9 5 8
1 9 6 0
0:@:=;9= >8] F8>;
Aswath Damodaran
1 9 6 2
1 9 6 4
1 9 6 6
1 9 6 8
1 9 7 0
1 9 7 2
1 9 7 4
1 9 7 6
1 9 7 8
1 9 8 0
1 9 8 2
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
2 0 0 6
2 0 0 8
2 0 1 0
2 0 1 1
2 0 1 3
)87:>8D U8:9< >8] F8>;
19
.?8> =5 :9@;<>5F< :9 C5WF <>5AG >?:9G 8X5W> =:@:=;9=?; ;]^=:@:=;9= =8Co 20 !
*<?8> C5W 8F; >?; 5Z9;F 5E 8 <>5AG >?8> :< 877F58A?:9U 89 ;]^ =:@:=;9= =8C 89= C5W G95Z >?8> =5DD8F =:@:=;9= Z:>? A;F>8:9>CB &9 8==:J59_ 8<?8> C5W ?8@; 5Z9;= >?; <>5AG E5F <;@;F8D C;8F
Pb
Pa Ex-dividend day Dividend = $ D
2 c 2F:A; 8> Z?:A? C5W X5WU?> >?; <>5AG 8 Z?:D; X8AG 2Xc 2F:A; X;E5F; >?; <>5AG U5;< ;]^=:@:=;9= 28c2F:A; 8p;F >?; <>5AG U5;< ;]^=:@:=;9= 0 c 0:@:=;9=< =;AD8F;= 59 <>5AG >5_ >AU c #8];< 78:= 59 5F=:98FC :9A56; 89= A87:>8D U8:9< F;<7;AJ@;DC “
Aswath Damodaran
”
20
)8
!
#?; A8AU
!
#?; A8AU q 0hM^>5i
!
+:9A; >?; 8@;F8U; :9@;<>5F X;>Z;;9 <;DD:9U X;E5F; >?; ;]^=:@:=;9= =8C 89= <;DD:9U 8p;F >?; ;]^=:@:=;9= =8C ^ 2X ^ h2X ^ 2i >AU c 28 ^ h28 ^ 2i >AU q 0hM^>5i
!
+56; X8<:A 8DU;XF8 D;8=< W< >5 >?; E5DD5Z:9U/ Pb " Pa =
D Aswath Damodaran
1 " t o 1 " t cg 21
&9>W:J@; &67D:A8J59< 22 !
#?; F;D8J59Z;;9 >?; 7F:A; A?89U; 59 >?; ;]^ =:@:=;9= =8C 89= >?; =5DD8F =:@:=;9= Z:DD X; =;>;F6:9;= XC >?; =:\;F;9A; X;>Z;;9 >?; >8] F8>; 59 =:@:=;9=< 89= >?; >8] F8>; 59 A87:>8D U8:9< E5F >?; >C7:A8D :9@;<>5F :9 >?; <>5AGB Tax Rates
Ex-dividend day behavior
If dividends and capital gains are taxed equally
Price change = Dividend
If dividends are taxed at a higher rate than capital gains
Price change < Dividend
If dividends are taxed at a lower rate than capital gains
Price change > Dividend
Aswath Damodaran
22
#?; ;67:F:A8D ;@:=;9A;I 23
M[RR^M[R[ r -F=:98FC >8] F8>; c SKL r )87:>8D U8:9< F8>; c NTL r 2F:A; A?89U; 8< L 5E 0:@:=;9= c STL M[TM^M[TQ r -F=:98FC >8] F8>; c QKL r )87:>8D U8:9< F8>; c NKL r 2F:A; A?89U; 8< L 5E 0:@:=;9= c TQL M[TR^M[[K r -F=:98FC >8] F8>; c NTL r )87:>8D U8:9< F8>; c NTL r 2F:A; A?89U; 8< L 5E 0:@:=;9= c [KL Aswath Damodaran
23
0:@:=;9= *FX:>F8U; 24
!
*<?8> C5W 8F; 8 >8] ;];67> :9@;<>5F_ 89= >?8> C5W G95Z >?8> >?; 7F:A; =F57 59 >?; ;]^=:@:=;9= =8C :< 59DC [KL 5E >?; =:@:=;9=B ,5Z Z5WD= C5W ;]7D5:> >?:< =:\;F;9J8Dn 8B
&9@;<> :9 >?; <>5AG E5F >?; D59U >;F6
XB
+;DD >?; =8C X;E5F; >?; ;]^=:@:=;9= =8C_ XWC 59 >?; ;]^=:@:=;9= =8C
AB
eWC mW<> X;E5F; >?; ;]^=:@:=;9= =8C_ 89= <;DD 8p;FB
=B
ssssssssssssssssssssssssssssssssssssssssssssss
Aswath Damodaran
24
"]867D; 5E =:@:=;9= A87>WF; <>F8>;UC Z:>? >8] E8A>5F< 25
!
!
t4u A56789C :< <;DD:9U E5F `QK 8> AD5<; 5E >F8=:9U a8C OB -9 a8C P_ t4u U5;< ;]^=:@:=;9=v >?; =:@:=;9= 865W9> :< `MB #?; 7F:A; =F57 hEF56 78<> ;]86:98J59 5E >?; =8>8i :< 59DC [KL 5E >?; =:@:=;9= 865W9>B #?; >F89<8AJ59< 9;;=;= XC 8 >8]^;];67> $B+B 7;9<:59 EW9= E5F >?; 8FX:>F8U; 8F; 8< E5DD5Z
!
!
MB eWC M 6:DD:59 5AG AW6^=:@:=;9= 8> `QKd JDD <>5AG U5;< ;]^=:@:=;9=v +;DD <>5AG E5F `P[BMKd =:@:=;9= 59 <>5AGB
%;> 7F5b> c ^ QK 6:DD:59 q P[BMK 6:DD:59 q M 6:DD:59 c `KBMK 6:DD:59
Aswath Damodaran
25
#Z5 X8= F;8<59< E5F 78C:9U =:@:=;9=< MB #?; X:F= :9 >?; ?89= E8DD8AC 26
!
!
*FUW6;9>/ 0:@:=;9=< 95Z 8F; 65F; A;F>8:9 >?89 A87:>8D U8:9< D8>;FB ,;9A; =:@:=;9=< 8F; 65F; @8DW8XD; >?89 A87:>8D U8:95AG< >?8> 78C =:@:=;9=< Z:DD >?;F;E5F; X; 65F; ?:U?DC @8DW;= >?89 <>5AG< >?8> =5 95>B )5W9>;F/ #?; 877F57F:8>; A5678F:<59 Z;;9 =:@:=;9=< >5=8C 89= 7F:A; 877F;A:8J59 >5=8CB #?; <>5AG 7F:A; =F57< 59 >?; ;]^=:@:=;9= =8CB
Aswath Damodaran
26
NB .; ?8@; ;]A;<< A8?:< C;8FI 27
!
!
*FUW6;9>/ #?; bF6 ?8< ;]A;<< A8< ?89=< >?:< C;8F_ 95 :9@;<>6;9> 7F5m;A>< >?:< C;8F 89= Z89>< >5 U:@; >?; 659;C X8AG >5 <>5AG?5D=;F;F/ +5 Z?C 95> mW<> F;7WFA?8<; <>5AGn &E >?:< :< 8 59;^J6; 7?;956;959_ >?; bF6 ?8< >5 A59<:=;F EW>WF; b989A:9U 9;;= 5E F8:<:9U 9;Z b989A:9U :9 EW>WF; C;8F<_ ;<7;A:8DDC XC :<C_ A89 X; <>8UU;F:9UB
Aswath Damodaran
27
#?; )5<> 5E !8:<:9U )87:>8D 28 Figure 10.12: Issuance Costs for Stocks and Bonds 25.00%
20.00%
d e s 15.00% i a r s d n u f f o %10.00% s a t s o C
5.00%
0.00% Under $1 mil
$1.0-1.9 mil
$2.0-4.9 mil
$5.0-$9.9 mil Size of Issue
Cost of Issuing bonds
Aswath Damodaran
$10-19.9 mil
$20-49.9 mil
$50 mil and over
Cost of Issuing Common Stock
28
#?F;; U55= F;8<59< E5F 78C:9U =:@:=;9=
”
29
!
!
!
)D:;9>;D; "\;A>/ #?; :9@;<>5F< :9 C5WF A56789C D:G; =:@:=;9=5FC/ 0:@:=;9=< A89 X; <:U98D< >5 >?; 68FG;> >?8> C5W X;D:;@; >?8> C5W ?8@; U55= A8< :9 >?; EW>WF;B #?; .;8D>? *77F57F:8J59 +>5FC/ 0:@:=;9=< 8F; 59; Z8C 5E >F89? EF56 D;9=;F< >5 ;VW:>C :9@;<>5F< h>?:< :< U55= E5F ;VW:>C :9@;<>5F< XW> X8= E5F D;9=;F
Aswath Damodaran
29
MB #?; )D:;9>;D; "\;A> #?; <>F89U; A8<; 5E ):Jx;9 < $JD:>C “
”
’
30
Class A shares pay cash dividend
Aswath Damodaran
Class B shares offer the same amount as a stock dividend & can be converted to class A shares 30
"@:=;9A; EF56 )898=:89 bF6< 31
Company
Premium for cash dividend shares
Consolidated Bathurst
+ 19.30%
Donfasco
+ 13.30%
Dome Petroleum
+ 0.30%
Imperial Oil
+12.10%
Newfoundland Light & Power
+ 1.80%
Royal Trustco
+ 17.30%
Stelco
+ 2.70%
TransAlta
+1.10%
Average across companies
+ 7.54%
Aswath Damodaran
31
* AD:;9>;D; X8<;= ;]7D898J59 32
!
!
e8<:5F< 68C E5F6 AD:;9>;D;< X8<;= W759 >?;:F >8] XF8AG;>5F< :9 ?:U? >8] XF8AG;>< 68C :9@;<> :9 <>5AG< Z?:A? =5 95> 78C =:@:=;9=< 89= >?5<; :9 D5Z >8] XF8AG;>< 68C :9@;<> :9 =:@:=;9= 78C:9U <>5AGW=C 5E [MP :9@;<>5F >5 <;; :E >?;:F 75Fy5D:5 75<:J59< Z;F; 8\;A>;= XC >?;:F >8] XF8AG;>W=C E5W9= >?8> h8i -D=;F :9@;<>5F< Z;F; 65F; D:G;DC >5 ?5D= ?:U? =:@:=;9= <>5AG< 89= ! hXi 255F;F :9@;<>5F< >;9=;= >5 ?5D= ?:U? =:@:=;9= <>5AG< !
Aswath Damodaran
32
!;< EF56 !;UF;<<:59/ )D:;9>;D; "\;A> 0:@:=;9= 4 :;D=> c 8 q X !> q A *U;> q = & 9A56;> q ; 0:EE;F;9>:8D # 8] ! 8>;> q "> O /1)/M= ,
P 8,@ @ ) J ) ,-7
; FI= ) ,.
) 59<>89>
PB NNL
e ;>8 ) 5;EE:A:;9>
^NB MPQ
, :U?;F X;>8 <>5AG< 78C D5Z;F =:@:=;9=
*U;dMKK
OB MOM
H :F6< Z:>? 5D=;F :9@;<>5F< 78C ?:U?;F =:@:=;9=
& 9A56;dMKKK
^OB SNR
H :F6< Z:>? Z;8D>?:;F :9@;<>5F< 78C D5Z;F =:@:=;9=
0:EE;F;9>:8D #8] ! 8>;
^NB TP[
& E 5F=:98FC :9A56; :< >8];= 8> 8 ?:U?;F F8>; >?89 A87:>8D U8:9<_ >?; E:F6 78C< D;<< =:@:=;9=
0:@:=;9= 25D:AC 89= )D:;9>;D; 34 !
8B
XB
AB
=B
*<?8> C5W FW9 8 7?59; A56789C_ 89= >?8> C5W ?8@; ?:<>5F:A8DDC 78:= D8FU; =:@:=;9=5 ;9>;F >?; >;D;A566W9:A8J59< 89= 6;=:8 68FG;>?; E5DD5Z:9U 78>?< 8F; C5W 65<> D:G;DC >5 E5DD5Zn )5WF8U;5W5 C5WF <>5AG?5D=;F< >?8> C5W 7D89 >5 AW> =:@:=;9=< 89= :9@;<> :9 >?; 9;Z 68FG;>5 78C >?; =:@:=;9=< >?8> C5W W<;= >5_ 89= =;E;F :9@;<>6;9> :9 >?; 9;Z 68FG;>5 78C >?; =:@:=;9=< >?8> C5W W<;= >5_ 68G; >?; :9@;<>6;9>< :9 >?; 9;Z 68FG;><_ 89= :<5AG >5 A5@;F >?; ?;F
Aswath Damodaran
34
NB 0:@:=;9=< <;9= 8 <:U98D &9AF;8<;< :9 =:@:=;9=< 8F; U55= 9;Z
35
Aswath Damodaran
35
eW> ?:U?;F 5F 9;Z =:@:=;9=< 68C <:U98D X8= 9;Z< h95> U55=i 36
()*)+,-+ ;-)C/C8-. /-+ 0/1-)-2. R18N7< PQBKKL PKBKKL OQBKKL , 7 / BOKBKKL < 7 N 8 1 RNQBKKL . 2 ) 1 NKBKKL / 0 = / ?MQBKKL Q
MKBKKL QBKKL KBKKL ^P
^O
^N
^M
M
N
O
P
E,/1 1,=/C*, 78 +)*)+,-+ )-)C/C8- ST,@81, /-+ /U,1V
Aswath Damodaran
36
e5>? =:@:=;9= :9AF;8<;< 89= =;AF;8<;< 8F; X;A56:9U D;<< :9E5F68J@;I Market Reaction to Dividend Changes over time: US companies
MBKKL
KBKKL M[RN^M[SP
M[SQ^M[TS
M[TT^NKKK
^MBKKL
^NBKKL
0:@:=;9= &9AF;8<;< 0:@:=;9= 0;AF;8<;<
^OBKKL
^PBKKL
^QBKKL
^RBKKL
OB 0:@:=;9= :9AF;8<;< 68C X; U55= E5F <>5AG X8= E5F X59=
Stock price rises
0.5 0 t:- -12 -9 -0.5 15
-6
-3
0
3
6
9
CAR
12 15 CAR (Div Up) CAR (Div down)
-1 -1.5
Bond price drops
-2 Day (0: Announcement date)
.?8> 6898U;F< X;D:;@; 8X5W> =:@:=;9=
Aswath Damodaran
39
