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• Cash Dividend
• Stock Dividend
• Bond Dividend
• Property Dividend
• Composite Dividend
• Optional Dividend
• Interim Dividend
• Extra or Special Dividend
DIVIDEND THEORIES
ASSUMPTIONS
P0 = D1 + P1
1+ k
P0 = Market price at the beginning or at the 0 period.
P1= Market price at the end of the period 1.
k = Cost of equity capital or capitalization rate of firm
D1 = Dividend per share at the end of period 1.
CRITICISM
P =DIV + r (EPS-DIV) / k
k k
P = market price per share.
DIV = dividend per share.
EPS= earning per share.
r = firm’s rate of return.
k = firm’s cost of capital or capitalization rate.
CRITICISM
• No external financing.
• Constant rate of return and cost of capital.
• The formula does not consider all the factors affecting
dividend policy.
• It fails to explain the behavior of share price in the
situation when r = k.
GORDON’S MODEL
ASSUMPTION
Myron Gordon develops one very popular model explicitly