Dividend irrelevance theory If a firm's net income varies from year to year, this dividend policy exposes a shareholder to uncertainty regarding the amount of dividends to be received each year. Information content hypothesis According to this policy, the amount of dividends paid is equal to the amount of the firm's net earnings minus the amount of retained earnings necessary to finance the firm's optimal capital budget. Holder-of-record date A dividend that is paid in the form of additional shares of the paying firm's stock rather than in cash. Residual dividend policy If a shareholder opts to participate in this program, their dividends are automatically used to purchase additional shares of the firm's outstanding or newly issued stock. Stock split On this date, the firm closes its stock transfer, or stock ownership, book, and the shareholders recorded in the book will receive the firm's next declared dividend. Constant payout ratio This theory argues that investors do not care about a firm's dividend policy since they are concerned with the total return generated by the firm, not whether the return is derived from dividend income or capital gains. Dividend reinvestment plans According to this theory, an announced dividend payment that exceeds investors' expectations is interpreted to be "good" news and should be expected to increase the price of the firm's common stock, whereas an announced dividend that is less than investors' expectations is construed as "bad" news and should be expected to decrease the firm's share price. Optimal dividend policy Under this activity, a firm with 100,000 shares of outstanding stock, each trading for $44 per share, doubles the number of shares outstanding, causing the per-share market value of the shares to decrease to $22. Stock dividend An earnings distribution activity in which the firm's earnings are used to purchase outstanding shares of the paying firm in the financial markets. Stock repurchase This dividend policy maximizes the price of a firm's common stock