Dividend

See also: Dividend (homonymy)

In economy, the dividend of an action is a money payment to the Actionnaire S of an identical amount for each held action, taken on the Clear benefit or the Réserve S of the company, and being used to remunerate their participation in the capital and the taking risk entrepreneurial correlative.

The payment of a dividend does not change the richness of the shareholder at the time. Indeed, before being distributed, the course of the action includes/understands the amount of the dividend (which still appears in the assessment in the form of credits of treasury). After distribution, the course of the action decreases by the amount corresponding to the dividend by action (impoverishment of the company, therefore reduction in its credit net, determinant of the course of the action).

Certain companies authorize their shareholders besides to reinvest their dividend in the form of purchase of actions.

Methods

The payment of a dividend, even in the event of benefit, is not automatic and raises of a decision of the General meeting of the Actionnaire S. the nonversed part of the benefit in dividend and thus reinvested in the company is entered in the account Réserve.

The payment is carried out periodically, it is the general meeting which decides dates of payment. In France, the tradition was once per annum, but modifications as regards fiscal policy (reform Tax credit it at January 1st, 2005) and the will to attract new investors changed the way of regulating the dividend. Taking as a starting point the Anglo-Saxon model (the United States of America) where the dividends are versed quarterly in the form of installments on the next benefit, French companies start to pour the dividends by semi-annual installment and generally a few days after the fixing of the value of the dividends by the general meeting.

Output and evaluation of action

In the case of taking away of tax to the source, one distinguishes the rough dividend (before tax) from the dividend Net (after tax).

For the companies which pour dividends regularly, one calls Rendement action the Ratio (expressed as a percentage) of the last known annual dividend divided by the stock exchange courts current.

The dividend one of the elements is used in the evaluation of action. Certain values pour dividends important compared to the valorization of the action. These actions are high-output values. They are especially interesting for short-term investments (2 to 5 years) because they often have weak variations of course.

Evaluation by the DDM (Dividend Discounted Model)

The utility to evaluate actions is obviously to determine those which appear currently underestimated by using certain methods which are complementary and which should not be exclusive. Among these tools for evaluation one of most known is the model of Gordon Shapiro.

Its approach is very simple: it takes as principle that the value of an action today is equal so that it will pay in the future (the sum of the brought up to date dividends). To determine the future dividends 3 elements will thus have to be determined:

1. the dividend which the company will pay the next year, which normally does not pose too much problem.

2. annual growth of the dividend: G. It is the element most difficult to determine. A way of doing is to take again the growth averages of the previous years or to extrapolate this growth. This constant growth is supposed.

3. The actualization of the dividends: K. It is indeed necessary to take into account the loss in value of the money each year, because it is known well that a dividend of 100 € paid in 20 years will be worth less than one dividend of 100 € paid today. One can generally take the rate of inflation awaited for the next years which is published by Central Bank Européenne.

There exist several ways of calculating the DDM:

  • To estimate the first dividend, and then to extrapolate it using the " G" that one estimated

  • or to estimate dividend the first 5 year old and then to extrapolate the dividend of the 5th year.
Simple model: Estimate of the first dividend Model multi phases: Estimate of the first 5 year old dividends and future growth

Limits of the DDM

  • the DDM does not apply to the values of strong growth which almost do not distribute a dividend, even if one can suppose that in the long term they will do it!

  • One supposes that the growth rate of the benefit is lower than the up-dating rate.
  • It is difficult to use for companies presenting of strong fluctuations.

In conclusion

  • the DDM will have the quality of your estimates.

  • It is of course obvious that one cannot base oneself only on the DDM to select an action and that it is necessary to take account of other elements.

See too

Internal bonds

External bonds

Simple: Dividend

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