Payout Policy

Chapter 20
Payout Policy
Copyright © 2015 Pearson Canada Inc.

Chapter Outline
20.1 Distributions to Shareholders

20.2 Comparison of Dividends and
Share Repurchases
20.3 The Tax Disadvantage of Dividends
20.4 Dividend Capture and Tax Clienteles
20.5 Payout Versus Retention of Cash
20.6 Signalling with Payout Policy
20.7 Stock Dividends, Splits, and Spin-offs
Copyright © 2015 Pearson Canada Inc. 20-2
Learning Objectives
1. List two ways a company can distribute cash to

its shareholders.
2. Describe the dividend payment process and the
open-market repurchase process.
3. Define stock split, reverse stock split, and stock
dividend; describe the effect of those actions on
stock price.
4. Discuss the effect of dividend payment or share
repurchase in a perfect world.

Learning Objectives (cont'd)
5. Assuming perfect capital markets, describe

what Modigliani and Miller (1961) found about
payout policy.
6. Discuss the effect of taxes on dividend policy
7. Compute the effective dividend tax rate.
8. Provide reasons why firms might accumulate
cash balances rather than pay dividends.
9. Describe the effect of agency costs on
payout policy.

Learning Objectives (cont'd)
10.Assess the impact of information asymmetry on

payout policy.
11.Describe the relationship between stock price
and number of shares for: stock splits, reverse
splits and stock dividends.

20.1 Distributions to Shareholders
• Payout Policy
§ The way a firm chooses between the alternative ways
to distribute free cash flow to equity holders

Figure 20.1

Dividends
• Declaration Date
§ The date on which the board of directors authorizes the
payment of a dividend
• Record Date
§ When a firm pays a dividend, only shareholders on
record on this date receive the dividend.

Dividends (cont'd)
• Ex-dividend Date
§ A date, two days prior to a dividend’s record date, on
or after which anyone buying the stock will not be
eligible for the dividend
• Payable Date (Distribution Date)

§ A date, generally within a month after the record
date, on which a firm mails dividend checks to its
registered stockholders

Figure 20.2

Dividends (cont'd)
• Special Dividend
§ A one-time dividend payment a firm makes, which is
usually much larger than a regular dividend
• Stock Split (Stock Dividend)

§ When a company issues a dividend in shares of stock
rather than cash to its shareholders

Figure 20.3

Dividends (cont'd)
• Return of Capital
§ When a firm, instead of paying dividends out of current
earnings (or accumulated retained earnings), pays
dividends from other sources, such as paid-in-capital or
the liquidation of assets
• Liquidating Dividend
§ A return of capital to shareholders from a business
operation that is being terminated

Share Repurchases
• An alternative way to pay cash to investors is

through a share repurchase or buyback.
§ The firm uses cash to buy shares of its own
outstanding stock.

Share Repurchases (cont'd)
• Open Market Repurchase

§ When a firm repurchases shares by buying shares in
the open market
§ Open market share repurchases represent about 95%
of all repurchase transactions
§ Both TSX and SEC guidelines recommend that the firm
not purchase more than 25% of the average daily
trading volume in its shares on a single day
§ These guidelines also recommend that firms not make
purchases at the market open or within 30 minutes of
the close of trade.

• Tender Offer
§ A public announcement of an offer to all existing
security holders to buy back a specified amount of
outstanding securities at a prespecified price (typically
set at a 10%-20% premium to the current market
price) over a prespecified period of time (usually
about 20 days)
§ If shareholders do not tender enough shares, the firm
may cancel the offer and no buyback occurs.

• Dutch Auction
§ A share repurchase method in which the firm lists
different prices at which it is prepared to buy shares,
and shareholders in turn indicate how many shares
they are willing to sell at each price. The firm then pays
the lowest price at which it can buy back its desired
number of shares

• Targeted Repurchase
§ When a firm purchases shares directly from a
specific shareholder
• Greenmail
§ When a firm avoids a threat of takeover and removal of
its management by a major shareholder by buying out
the shareholder, often at a large premium over the
current market price

20.2 Comparison of Dividends
and Share Repurchases
• Consider Genron Corporation. The firm’s board is

meeting to decide how to pay out $20 million in
excess cash to shareholders.
• Genron has no debt, and its equity cost of capital
equals its unlevered cost of capital of 12%.

Alternative Policy 1:
Pay Dividend with Excess Cash
• With 10 million shares outstanding, Genron will be

able to pay a $2 dividend immediately.
• The firm expects to generate future free cash
flows of $48 million per year, thus it anticipates
paying a dividend of $4.80 per share each
year thereafter.

Pay Dividend with Excess Cash (cont'd)
• Cum-dividend
§ When a stock trades before the ex-dividend date,
entitling anyone who buys the stock to the dividend
• The cum-dividend price of Genron will be

4.80
Pcum  Current Dividend  PV (Future Dividends)  2   2  40  $42
0.12

• After the ex-dividend date, new buyers will not

receive the current dividend and the share price of
Genron will be
4.80
Pex  PV (Future Dividends)   $40
0.12


• In a perfect capital market, when a dividend

is paid, the share price drops by the amount
of the dividend when the stock begins to
trade ex-dividend.

Share Repurchase (No Dividend)
• Suppose that instead of paying a dividend this

year, Genron uses the $20 million to repurchase
its shares on the open market.
§ With an initial share price of $42, Genron will
repurchase 476,000 shares.
• $20 million ÷ $42 per share = 0.476 million shares
§ This will leave only 9.524 million shares outstanding.

• 10 million − 0.476 million = 9.524 million

Share Repurchase (No Dividend) (cont'd)
• The net effect is that the share price

remains unchanged.

• Genron’s Future Dividends

§ It should not be surprising that the repurchase had no
effect on the stock price.
§ After the repurchase, the future dividend would rise to
$5.04 per share.
• $48 million ÷ 9.524 million shares = $5.04 per share
• Genron’s share price is
5.04
Prep   $42
0.12

• Genron’s Future Dividends

§ In perfect capital markets, an open market share
repurchase has no effect on the stock price, and the
stock price is the same as the cum-dividend price if a
dividend were paid instead.

• Investor Preferences
§ In perfect capital markets, investors are indifferent
between the firm distributing funds via dividends or
share repurchases. By reinvesting dividends or selling
shares, they can replicate either payout method on
their own.

• Investor Preferences
§ In the case of Genron, if the firm repurchases shares
and the investor wants cash, the investor can raise
cash by selling shares.
• This is called a homemade dividend.
§ If the firm pays a dividend and the investor would

prefer stock, they can use the dividend to purchase
additional shares.

Example 20.1

Example 20.1 (cont’d)

High Dividend (Equity Issue)
• Suppose Genron wants to pay a dividend larger

than $2 per share right now, but it only has $20
million in cash today.
§ Thus, Genron needs an additional $28 million to pay
the larger dividend now. To do this, the firm decides to
raise the cash by selling new shares.

High Dividend (Equity Issue) (cont'd)
• Given a current share price of $42, Genron could

raise $28 million by selling 0.67 million shares.
§ $28 million ÷ $42 per share = 0.67 million shares
• This will increase the total number of shares to
10.67 million.

High Dividend (Equity Issue) (cont'd)
• The new dividend per share will be

$48 million
 $4.50 per share
10.67 million shares
• And the cum-dividend share price will be

4.50
Pcum  4.50   4.50  37.50  $42
0.12
• Again, the share value is unchanged.

Modigliani–Miller
and Dividend Policy Irrelevance
• There is a trade-off between current and future

dividends.
§ If Genron pays a higher current dividend, future
dividends will be lower.
§ If Genron pays a lower current dividend, future
dividends will be higher.

Table 20.1

Modigliani–Miller
and Dividend Policy Irrelevance (cont'd)
• MM Dividend Irrelevance
§ In perfect capital markets, holding fixed the investment
policy of a firm, the firm’s choice of dividend policy is
irrelevant and does not affect the initial share price.

Dividend Policy
with Perfect Capital Markets
• A firm’s free cash flow determines the level of

payouts that it can make to its investors.
§ In a perfect capital market, the type of payout
is irrelevant.
§ In reality, capital markets are not perfect and it is
these imperfections that should determine the firm’s
payout policy.

20.3 The Tax Disadvantage of Dividends
• Taxes on Dividends and Capital Gains

§ Shareholders must pay taxes on the dividends they receive
and they must also pay capital gains taxes when they sell
their shares.
§ Dividends are typically taxed at a higher rate than capital
gains. In fact, long-term investors can defer the capital gains
tax forever by not selling.
§ The actual difference in tax rates on dividend income and
capital gains income has changed over the years in both
Canada and the United States.
§ If dividends are taxed at a higher rate than capital gains,
which is the case in Canada, shareholders will prefer share
repurchases to dividends
20.3 The Tax Disadvantage
of Dividends (cont'd)
• Taxes on Dividends and Capital Gains

§ The higher tax rate on dividends makes it undesirable
for a firm to raise funds to pay a dividend.
• When dividends are taxed at a higher rate than capital gains,
if a firm raises money by issuing shares and then gives that
money back to shareholders as a dividend, shareholders
are hurt because they will receive less than their initial
investment.

Example 20.2


Alternative Example 20.2
• Problem
§ Assume:
• A firm raises $25 million from shareholders and uses this
cash to pay them $25 million in dividends.
• Dividends are taxed at a 39% tax rate
• Capital gains are taxed at a 20% tax rate.
§ How much will shareholders receive after taxes?

Alternative Example 20.2 (cont’d)
• Solution
§ On dividends, shareholders will owe:
• 39% × $25 million = $9.75 million in dividend taxes.
§ Shareholders will lower their capital gains taxes by:

• 20% × $25 million = $5 million
Ø Note: The value of the firm will fall when the dividend is paid,
lowering the shareholders’ capital gains.

• Solution (continued)
§ Shareholders will pay a total of $4.75 million in taxes.
• $9.75 − $5.00 = $4.75 million
§ Shareholders will receive back only $20.25 million of

their $25 million investment.
• $25 − $4.75 = $20.25 million

Optimal Dividend Policy with Taxes
• When the tax rate on dividends is greater than the

tax rate on capital gains, shareholders will pay
lower taxes if a firm uses share repurchases
rather than dividends.
§ This tax savings will increase the value of a firm that
uses share repurchases rather than dividends.

Optimal Dividend Policy
with Taxes (cont'd)
• The optimal dividend policy when the dividend tax

rate exceeds the capital gain tax rate is to pay no
dividends at all.
§ The payment of dividends has declined on average
over the last 30 years while the use of repurchases
has increased.

Figure 20.4

Figure 20.5

Optimal Dividend Policy
with Taxes (cont'd)
• Dividend Puzzle
§ When firms continue to issue dividends despite their tax
disadvantage

20.4 Dividend Capture and Tax Clienteles
• The preference for share repurchases rather than

dividends depends on the difference between the
dividend tax rate and the capital gains tax rate.
§ Tax rates vary by income, by jurisdiction, and by
whether the stock is held in a retirement account.
§ Given these differences, firms may attract different
groups of investors depending on their dividend policy.

The Effective Dividend Tax Rate
• Consider buying a stock just before it goes ex-

dividend and selling the stock just after.
§ The equilibrium condition must be:
(Pcum  Pex ) (1   g )  Div(1   d )

• Which can be stated as
1  d   d  g 
Pcum  Pex  Div  
 1   
 Div   1 
 1  g

  Div  1   d
*

 g   
Ø Where Pcum is the cum-dividend price, Pex is the ex-dividend price,

Tg is the capital gains rate tax, Td is the dividend tax rate.

The Effective Dividend Tax Rate (cont'd)
• Thus, the effective dividend tax rate is

d  g 
 *
  
d 1  
 g 
§ This measures the additional tax paid by the investor
per dollar of after-tax capital gains income that is
instead received as a dividend.

Example 20.3


Tax Differences Across Investors
• The effective dividend tax rate differs across
investors for a variety of reasons.
§ Income Level
§ Investment Horizon
§ Tax Jurisdiction
§ Type of Investor or Investment Account
• As a result of their different tax rates investors will

have varying preferences regarding dividends.

Tax Differences Across Investors (cont’d)
• Canadian investors are subject to provincial taxes
that differ by province. U.S. investors in Canadian
stocks and Canadian investors in U.S. stocks are
subject to a 15% withholding tax for dividends
they receive.
• Stocks held by individual investors in a registered
retirement savings plan (RRSP), registered
retirement income fund (RRIF), or tax-free savings
account (TFSA) are not subject to taxes on
dividends or capital gains.

Clientele Effects
• Clientele Effect
§ When the dividend policy of a firm reflects the tax
preference of its investor clientele
• Individuals in the highest tax brackets have a preference
for stocks that pay no or low dividends, whereas tax-free
investors and corporations have a preference for stocks
with high dividends.

Table 20.2

Clientele Effects (cont'd)
• Dividend-Capture Theory
§ The theory that absent transaction costs, investors can
trade shares at the time of the dividend so that non-
taxed investors receive the dividend
• An implication of this theory is that we should see large
trading volume in a stock around the ex-dividend day, as
high-tax investors sell and low-tax investors buy the stock in
anticipation of the dividend, and then reverse those trades
just after the ex-dividend date.

Figure 20.6

20.5 Payout Versus Retention of Cash
• In perfect capital markets, once a firm has taken

all positive-NPV investments, it is indifferent
between saving excess cash and paying it out.
• With market imperfections, there is a tradeoff:
Retaining cash can reduce the costs of raising
capital in the future, but it can also increase taxes
and agency costs.

Retaining Cash
with Perfect Capital Markets
• If a firm has already taken all positive-NPV

projects, any additional projects it takes on are
zero or negative-NPV investments.
§ Rather than waste excess cash on negative-NPV
projects, a firm can use the cash to purchase
financial assets.
§ In perfect capital markets, buying and selling securities
is a zero-NPV transaction, so it should not affect
firm value.

Retaining Cash
with Perfect Capital Markets (cont'd)
• Thus, with perfect capital markets, the

retention versus payout decision is
irrelevant.

Example 20.4


• Problem
§ Payne Enterprises has $20,000,000 in excess cash.
§ Payne is considering investing the cash in one-year
Treasury bills paying 5% interest, and then using the
cash to pay a dividend next year.

• Problem (continued)
§ Alternatively, the firm can pay a dividend immediately
and shareholders can invest the cash on their own.
§ In a perfect capital market, which option will
shareholders prefer?

• Solution
§ If Payne pays an immediate dividend, the shareholders
receive $20,000,000 today.
§ If Payne retains the cash, at the end of one year the
company will be able to pay a dividend of $21,000,000.
• $20,000,000 × (1.05) = $21,000,000

• Solution (continued)
§ If shareholders invest the $20,000,000 in Treasury bills
themselves, they would have $21,000,000 at the end of
1 year.
• $20,000,000 × (1.05) = $21,000,000
§ The present value in either scenario is:

• $21,000,000 ÷ 1.05 = $20,000,000
§ Thus shareholders are indifferent about whether the

firm pays the dividend immediately or retains the cash.

Retaining Cash
with Perfect Capital Markets (cont'd)
• MM Payout Irrelevance
§ In perfect capital markets, if a firm invests
excess cash flows in financial securities, the
firm’s choice of payout versus retention is
irrelevant and does not affect the initial share
price.

Taxes and Cash Retention
• Corporate taxes make it costly for a firm to retain

excess cash.
§ Cash is equivalent to negative leverage, so the tax
advantage of leverage implies a tax disadvantage to
holding cash.

Example 20.5


• Problem
§ What if Payne, from Alternative Example 20.4,
has a marginal tax rate of 39%. Would a tax-
exempt endowment prefer that Payne use its
excess cash to pay the dividend immediately or
invest the cash in a Treasury bill paying 5%
interest and then pay out a dividend?

• Solution
§ If Payne pays a dividend today, shareholders
receive $20,000,000. If Payne retains the cash
for one year, it will earn an after-tax return on
the Treasury bills of:
5% × (1 − 0.39) = 3.05%
§ At the end of the year, Payne will pay a dividend
of $20,000,000 × (1.0305) = $20,610,000.
This amount is less than the $21,000,000 the
endowment would have earned if they had
invested the $20,000,000 in the Treasury bills
themselves.
Example 20.6


• Problem
§ What if Payne, from Alternative Examples 20.4
and 20.5, were to pay a special dividend of
$20,000,000. How would this affect the present
value of the taxes Payne must pay?

• Solution
§ If Payne retains the $20,000,000 and invests in
Treasury Bills, the interest will be taxed at 39%.
The present value of the tax payments on
Payne’s additional interest income will be:
$20, 000, 000  5%  39%

 $7,800, 000
5%

Adjusting for Investor Taxes
• The decision to pay out versus retain cash may

also affect the taxes paid by shareholders.
• While pension and retirement fun investors are tax
exempt, most individual investors must pay taxes
on interest, dividends, and capital gains.

Adjusting for Investor Taxes (cont’d)
• The decision to pay out versus retain cash may

also affect the taxes paid by shareholders.
§ When a firm retains cash, it must pay corporate tax on
the interest it earns. In addition, the investor will owe
capital gains tax on the increased value of the firm. In
essence, the interest on retained cash is taxed twice.

Adjusting for Investor Taxes (cont'd)
§ If the firm paid the cash to its shareholders instead,

they could invest it and be taxed only once on the
interest that they earn.
§ The cost of retaining cash therefore depends on the
combined effect of the corporate and capital gains
taxes, compared to the single tax on interest income.
 1   c  1   g  
 retain
*
 1  
 1   i  

Issuance and Distress Costs
• Generally, firms retain cash balances to cover

potential future cash shortfalls, despite the tax
disadvantage to retaining cash.
§ A firm might accumulate a large cash balance if
there is a reasonable chance that future earnings
will be insufficient to fund future positive-NPV
investment opportunities.

Issuance and Distress Costs (cont'd)
• The cost of holding cash to cover future potential

cash needs should be compared to the reduction
in transaction, agency, and adverse selection
costs of raising new capital through new debt or
equity issues.

Agency Costs of Retaining Cash
• When firms have excessive cash, managers may

use the funds inefficiently by paying excessive
executive perks, over-paying for acquisitions, etc.
§ Paying out excess cash through dividends or share
repurchases, rather than retaining cash, can boost the
stock price by reducing managers’ ability and
temptation to waste resources.

Example 20.7


Agency Costs of Retaining Cash (cont'd)
• Firms should choose to retain to help with future

growth opportunities and to avoid financial
distress costs.
§ It is not surprising that high-tech and biotechnology
firms tend to retain and accumulate large amounts
of cash.

• Problem
§ Altgreen is an all-equity firm with 250 million
shares outstanding. Altgreen has $300 million in
cash and expects future free cash flows of $150
million per year. Management plans to use the
cash to expand the firm’s operations, which will
in turn increase future free cash flows by 10%.
§ If the cost of capital of Altgreen’s investments is
7%, how would a decision to use the cash for a
share repurchase rather than the expansion
change the share price?

• Solution
§ If Altgreen uses the cash to expand, its future
free cash flows will increase by 10% to $150
million  1.10 = $165 million per year. Using the
perpetuity formula, its market value will be
$165 million ÷ .07 = $2.357 billion, or $2.357
billion ÷ 250 million shares = $9.43 per share.

• Solution
§ If Altgreen does not expand, the value of its
future free cash flows will be $150 million ÷ .07
= $2.143 billion. Adding the cash, Altgreen’s
market value is $2.443 billion, or $2.443 billion
÷ 250 million shares = $9.77 per share.

• Solution
§ If Altgreen repurchases shares, there will be no
change to the share price: It will repurchase
$300 million ÷ $9.77 per share = 30.71 million
shares, so it will have assets worth $ 2.143
billion with 250 million – 30.71 million = 219.29
million shares outstanding, for a share price of
$2.143 billion ÷ 219.29 million shares = $9.77
per share.

Table 20.3

20.6 Signalling with Payout Policy
• Dividend Smoothing
§ The practice of maintaining relatively constant
dividends
• Firms change dividends infrequently and dividends are
much less volatile than earnings.

Figure 20.7

20.6 Signalling with Payout Policy (cont'd)
• Research has found that

§ Management believes that investors prefer stable
dividends with sustained growth.
§ Management desires to maintain a long-term target
level of dividends as a fraction of earnings.
• Thus, firms raise their dividends only when they perceive a
long-term sustainable increase in the expected level of
future earnings, and cut them only as a last resort.

Dividend Signalling
• Dividend Signalling Hypothesis

§ The idea that dividend changes reflect managers’
views about a firm’s future earning prospects.
• If firms smooth dividends, the firm’s dividend choice will
contain information regarding management’s expectations
of future earnings.

Dividend Signalling (cont'd)
• When a firm increases its dividend, it sends a

positive signal to investors that management
expects to be able to afford the higher dividend for
the foreseeable future.
• When a firm decreases its dividend, it may signal
that management has given up hope that earnings
will rebound in the near term and so needs to
reduce the dividend to save cash.

Dividend Signalling (cont'd)
• While an increase of a firm’s dividend may

signal management’s optimism regarding its
future cash flows, it might also signal a lack of
investment opportunities.
• Conversely, a firm might cut its dividend to exploit
new positive-NPV investment opportunities.
§ In this case, the dividend decrease might lead to a
positive, rather than negative, stock price reaction.

Signalling and Share Repurchases
• Share repurchases are a credible signal that

the shares are under-priced, because if they
are over-priced a share repurchase is costly
for current shareholders.
§ If investors believe that managers have better
information regarding the firm’s prospects and act
on behalf of current shareholders, then investors will
react favourably to share repurchase announcements.

Example 20.8


• Stock Dividends and Splits

§ With a stock dividend, a firm does not pay out any cash
to shareholders.
• As a result, the total market value of the firm’s equity is
unchanged. The only thing that is different is the number of
shares outstanding.
Ø The stock price will therefore fall because the same total equity
value is now divided over a larger number of shares.

(cont'd)

§ Suppose Genron paid a 50% stock dividend (a 3:2
stock split) rather than a cash dividend.
• A shareholder who owns 100 shares before the dividend
has a portfolio worth $4,200.
Ø $42 × 100 = $4,200.
• After the dividend, the shareholder owns 150 shares.
Since the portfolio is still worth $4,200, the stock price
will fall to $28.
Ø $4,200 ÷ 150 = $28

Table 20.4

20.7 Stock Dividends, Splits,
and Spin-offs (cont'd)

§ Stock dividends are not taxed, so from both the firm’s
and shareholders’ perspectives, there is no real
consequence to a stock dividend.
§ The number of shares is proportionally increased and
the price per share is proportionally reduced so that
there is no change in value.


§ The typical motivation for a stock split is to keep
the share price in a range thought to be attractive to
small investors.
§ If the share price rises “too high,” it might be difficult for
small investors to invest in the stock.


§ Keeping the price “low” may make the stock more
attractive to small investors and can increase the
demand for and the liquidity of the stock, which may
in turn boost the stock price.
• On average, announcements of stock splits are associated
with a 2% increase in the stock price.


§ Reverse Split
• When the price of a company’s stock falls too low and the
company reduces the number of outstanding shares

Figure 20.8

Spin-offs
• Spin-off
§ When a firm distribute shares of a subsidiary in a
transaction.
§ Non-cash special dividends are commonly used to spin
off assets or a subsidiary as a separate company.
§ Examples: Bell Canada Enterprises (BCE) and Nortel.

Spin-offs (cont'd)
• Spin-offs offer two advantages

§ It avoids the transaction costs associated with a
subsidiary sale.
§ The special dividend is not taxed as a cash distribution.

Chapter Quiz
1. What is a targeted repurchase?

2. How important is the firm’s decision to pay
dividends versus repurchase shares,
assuming perfect capital markets?
3. What is “the dividend puzzle”?
4. Why would investors have a tax preference
for share repurchases rather than
dividends?

Chapter Quiz
5. Is there an advantage for a firm to retain

its cash instead of paying it out to
shareholders in perfect capital markets?
What if capital markets are not perfect?
6. What possible signals does a firm give
when it cuts its dividend?
7. What is the difference between a stock
dividend and a stock split?
8. Why would a firm initiate a reverse stock
split?
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Chapter 20

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20.1 Distributions to Shareholders

1. List two ways a company can distribute cash to

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5. Assuming perfect capital markets, describe

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10.Assess the impact of information asymmetry on

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• Payable Date (Distribution Date)

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• Stock Split (Stock Dividend)

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• An alternative way to pay cash to investors is

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• Open Market Repurchase

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• Consider Genron Corporation. The firm’s board is

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• With 10 million shares outstanding, Genron will be

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• The cum-dividend price of Genron will be

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• After the ex-dividend date, new buyers will not

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• In a perfect capital market, when a dividend

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• Suppose that instead of paying a dividend this

§ This will leave only 9.524 million shares outstanding.

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• The net effect is that the share price

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• Genron’s Future Dividends

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• Genron’s Future Dividends

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§ If the firm pays a dividend and the investor would

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• Suppose Genron wants to pay a dividend larger

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• Given a current share price of $42, Genron could

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• The new dividend per share will be

• And the cum-dividend share price will be

• Again, the share value is unchanged.

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• There is a trade-off between current and future

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