Define target payout ratio and optimal dividend policy

1. Define target payout ratio and optimal dividend policy.
2. Discuss the dividend irrelevance theory and the “bird-in-the-hand” theory, and discuss the reasons why some investors prefer dividends, while others may prefer capital gains.
3. Explain the information content, or signaling, hypothesis and the clientele effect.
4. Explain the logic of the residual dividend policy, and state why firms are more likely to use this policy in setting a long-run target than as a strict determination of dividends in a given year; explain dividend payment procedures.
5. Explain the use of dividend reinvestment plans, distinguish between the two types of plans, and discuss why the plans are popular with certain investors.