Sources of Equity Returns

Where an equity investor's return comes from: dividends and the payment timeline, share repurchases, stock splits and reverse splits, and price and total return.

1. 1. Dividends, splits, buybacks and the payment timelineOnly cash distributions change what shareholders receive: stock dividends and splits just cut the same pie into more slices, a buyback is equivalent to a cash dividend, and a share stops carrying the dividend on its ex-date.Video · 6 minFree12 min
2. 2. Why companies pay dividends, buy back, split or consolidateDividends, buybacks, splits and reverse splits are tools with different jobs: dividends send a steady signal, buybacks distribute cash flexibly to sellers only, and splits or reverse splits move the share price into a range that trades well.13 min
3. 3. Reading the price change on the ex-dividend dateOn the ex-dividend date a share's price change is the dividend coming off, plus the move of the market that day, plus whatever is specific to the company; separating the three shows what the dividend alone did.11 min
4. 4. Price return, total return and reinvested dividendsAn equity holding earns price change plus dividends; measure both on the same share basis after splits, and if dividends are reinvested in more shares, the extra shares share in the later price change.14 min
5. 5. Integrated cases: reinvested quarterly dividends, a split and the dividend calendarA holding-period return needs every price and dividend on one share basis; dividends received during the period earn their reinvestment return, either at a cash rate or in the stock, and the ex-date sits one business day before the record date when no settlement cycle is given.15 min
6. 6. Today's price from expected dividends and a target priceTurn the return formula around and today's fair price is the present value of the dividends expected over the holding period plus the present value of the expected price at its end, discounted at the required return on equity.12 min