When a company obtains equity financing it sends positive signals to the existing stockholders. It tells them that the company has plan for growth, and as a result it needs more funds. This is a happy sign for the existing shareholders because the growth in the company is going to benefit them by raising the prices of the shares they already hold. When a firm obtain debt financing shareholders are not very happy because it leaves them little profits as dividends. The reason behind this is the fact that debt holders have first claim on the profit of the company, and whatever is left after the debt charges or interest is paid is give to the shareholders. Additional debt means addition interest expense, and as result less is left for the shareholders. Apple has recently announced a stock split of seven-to-one. This has increased its outstanding stock and diluted the earning per share. As a result, it is enjoy higher Price-Earning-Ratio (Hulbert, 2014). Microsoft is paying very high cash dividend from the last decade or so. It has very large Free Cash Flow, and it pay quite hefty cash dividends to the investors. Berkshire is a company that has policy of not paying dividends to its shareholders. The company has recently also not paid any dividends. The reason giving by the management of Berkshire is that the company wants to expand into different territories and wants to improve its product lines, and as a result it needs more cash and hence no dividends will be paid (Morris, 2014). Preferred stock is a hybrid instrument for investors. It guarantees a dividend, and it represents ownership in the company. Apple has a preferred stock in its capital mix (Elmer-Dewitt, 2014). As of 2014, the value of preferred stock in the capital structure is around 21%.(Yahoo Finance, 2014).
References
Elmer-DeWitt, P. (2014). How Apple got to a (pre-split) $799.26. Fortune. Retrieved 3 December 2014, from http://fortune.com/2014/11/15/how-apple-got-to-a-pre-split-799-26/
Finance.yahoo.com,. (2014). AAPL Balance Sheet | Apple Inc. Stock - Yahoo! Finance. Retrieved 3 December 2014, from http://finance.yahoo.com/q/bs?s=AAPL+Balance+Sheet&annual
Hulbert, M. (2014). A simple way to beat the market with stock splits. MarketWatch. Retrieved 3 December 2014, from http://www.marketwatch.com/story/a-simple-way-to-beat-the-market-with-stock-splits-2014-09-16
Morris, P. (2014). Why Warren Buffett's Berkshire Hathaway Won't Pay a Dividend in 2015 (BRK-A, BRK-B). Fool.com. Retrieved 3 December 2014, from http://www.fool.com/investing/general/2014/11/16/why-warren-buffetts-berkshire-hathaway-wont-pay-a.aspx
Staff, M. (2014). Should Microsoft Increase Its Dividend? (MSFT). Fool.com. Retrieved 3 December 2014, from http://www.fool.com/investing/general/2014/11/18/should-microsoft-increase-its-dividend.aspx
