CHAPTER FIVE COMMON STOCK Practical Investment Management Robert A Strong
COMMON STOCK CHAPTER FIVE Practical Investment Management Robert A. Strong
Corporations, Shares, and shareholder rights People who own stock have an equity interest in the organization If a business has shares of stock, it is organized as a corporation rather than a proprietorship or a partnership The shares of some corporations are closely held, while others are publicly held. The two types of stock are common stock and preferred stock. Strong c5-Common Stock 5-2
5 - 2 Strong C5 – Common Stock ◆ People who own stock have an equity interest in the organization. ◆ If a business has shares of stock, it is organized as a corporation rather than a proprietorship or a partnership. ◆ The shares of some corporations are closely held, while others are publicly held. ◆ The two types of stock are common stock and preferred stock. Corporations, Shares, and Shareholder Rights
Corporations, Shares, and shareholder rights Shareholder rights o the right to receive declared dividends on a pro rata basis ◆ the right to vote Some companies have more than one class of stock the right to maintain ownership percentage The mechanics of the preemptive right are accomplished by a rights offering Strong c5-Common Stock 5-3
5 - 3 Strong C5 – Common Stock ◆ the right to receive declared dividends on a pro rata basis ◆ the right to vote - Some companies have more than one class of stock. ◆ the right to maintain ownership percentage - The mechanics of the preemptive right are accomplished by a rights offering. Shareholder Rights Corporations, Shares, and Shareholder Rights
The Mystique of Dividends: Types of Dividends ◆ cash dividends paid in cash Some firms have an optional dividend reinvestment plan Strong c5-Common Stock 5-4
5 - 4 Strong C5 – Common Stock ◆ cash dividends - paid in cash Some firms have an optional dividend reinvestment plan. The Mystique of Dividends: Types of Dividends
The Mystique of Dividends: Types of Dividends Selected dividend reinvestment plans DISCOUNT FROM FIRM MARKET PRICE Chase Manhattan Bank(CMB, NYse Central Maine Power(CTp Nrse Green Mountain Power (GMP, NYse Hibernia Corp(HIB, NYSE 5%0 York Financial (YFED, NASDAo 10% Strong c5-Common Stock 5-5
5 - 5 Strong C5 – Common Stock The Mystique of Dividends: Types of Dividends Selected Dividend Reinvestment Plans DISCOUNT FROM FIRM MARKET PRICE Chase Manhattan Bank (CMB,NYSE) 5% Central Maine Power (CTP, NYSE) 5% Green Mountain Power (GMP, NYSE) 5% Hibernia Corp. (HIB, NYSE) 5% York Financial (YFED, NASDAQ) 10%
The Mystique of Dividends: Types of Dividends ◆ stock dividends paid in additional shares of stock ◆ property dividends the pro rata distribution of a physical asset Strong c5-Common Stock 5-6
5 - 6 Strong C5 – Common Stock ◆ stock dividends - paid in additional shares of stock ◆ property dividends - the pro rata distribution of a physical asset The Mystique of Dividends: Types of Dividends
The Mystique of Dividends: Special Distributions e spin-offs -a parent firm divests itself of a subsidiary, and all the shares in the subsidiary are distributed proportionally to the shareholders in the parent e split-offs -a parent firm divests itself of a subsidiary, and the shareholders must make a choice between keeping shares in the parent, or exchanging them for shares in the separated subsidiary Strong c5-Common Stock 5-7
5 - 7 Strong C5 – Common Stock ◆ spin-offs - a parent firm divests itself of a subsidiary, and all the shares in the subsidiary are distributed proportionally to the shareholders in the parent ◆ split-offs - a parent firm divests itself of a subsidiary, and the shareholders must make a choice between keeping shares in the parent, or exchanging them for shares in the separated subsidiary The Mystique of Dividends: Special Distributions
The Mystique of Dividends: Special Distributions An increasingly common type of recapitalization is the issuance of shares called tracking stock These shares track the performance of a subsidiary, and in many respects, are just a new class of shares Strong c5-Common Stock 5-8
5 - 8 Strong C5 – Common Stock ◆ An increasingly common type of recapitalization is the issuance of shares called tracking stock. ◆ These shares track the performance of a subsidiary, and in many respects, are just a new class of shares. The Mystique of Dividends: Special Distributions
The Dividend Payment Procedure The Chronology of Events s MT WT F S 1. date of declaration sep19931234 口 1213141561718 EX-dividend date 9202122232425 (2 business days prior 2627229 to the date of record) 3456789 2. date of record 10111213141516 1718 2212223 3. date of payment -f24 25 26 27 28 2930 Strong c5-Common Stock 5-9
5 - 9 Strong C5 – Common Stock The Chronology of Events 1. date of declaration Ex-dividend date (2 business days prior to the date of record) 2. date of record 3. date of payment The Dividend Payment Procedure
The Dividend Payment Procedure +a dividend paid in accordance with a previously announced corporate policy is a regular dividend Companies usually pay dividends quarterly. e A firm that wishes to make an extra distribution of cash to the shareholders does so through a special dividend, also called an extra or extraordinary dividend Strong c5-Common Stock 5-10
5 - 10 Strong C5 – Common Stock ◆ A dividend paid in accordance with a previously announced corporate policy is a regular dividend. ◆ Companies usually pay dividends quarterly. ◆ A firm that wishes to make an extra distribution of cash to the shareholders does so through a special dividend, also called an extra or extraordinary dividend. The Dividend Payment Procedure
