Question

Investors and owners hold their interests in a company in order to make profits and earn income from those companies. When the time comes shareholders, directors and companies have various ways of returning or distributing value to shareholders. Please discuss the various means for returning value to shareholders, how they have recently become a bit controversial, and the signals different approaches to returning value give to existing and potential investors.

Answer 1

Various methods of distribution of profit and gains to the shareholders are as follows-

A. Dividend- Dividend is the most common method of returning of the profit and gains back to the shareholders because dividend is a charge on the overall profit of the company and these dividend are needed to be repaid to the shareholdersas per the need of the organisation because these dividends are not mandatory in nature. Investors will be needing to pay dividend tax

B. Share repurchase-share repurchase is a form of returning the benefits back to the shareholders because this will mean that company is trying to buy the the shares back from the shareholders at a premium on the existing market price and these premiums are acting as a benefits for the shareholders because the company will be using the reserves of the The organisation in order to distribute and these are also taxable.

Many company does not distribute the profit and they will reinvest into the business for growth.

Share repurchase has become a bit controversial due to to default of various companies in order to share repurchase because the company wants to inflate their share prices. Both dividend and share purchase are controversial practices in order to inflate the price of the company.

These are often used as distribution of profits back to the potential as well as the current investors because various investors will buy into the shares looking after the benefits generated through dividend and share repurchase.