How stock repurchases differ from dividends: ABC Co. has a policy of returning a minimum of 25 percent of earnings to shareholders every year through dividend issues and open-market stock repurchases. In each quarter this year, the company earned $0.25 per share. In each of the first three quarters, the company paid a regular cash dividend of $0.05 per share. The company has 2 million shares of common stock outstanding. What combination of dividends and stock repurchases could the company's board approve to meet their target payout percentage?

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The company has a policy of returning a minimum of 25 percent of earnings to shareholders every year through dividend issues and open-market stock repurchases. In each quarter this year, the company earned $0.25 per share. In each of the first three quarters, the company paid a regular cash dividend of $0.05 per share. The company has 2 million shares of common stock outstanding. To meet their target payout percentage, the company could pay a regular cash dividend of $0.05 per share and repurchase $100,000 worth of stock. This would result in a total payout of $150,000, which is 25 percent of the company's earnings for the year.

How Stock Repurchases Differ from Dividends: ABC Co