Dividend recapitalization is when a private equity firm issues new debt to raise money to pay special dividends to investors who helped finance the original purchase of the portfolio company.
Dividends reduce risk for the PE firm by providing early and immediate returns to shareholders, but increase debt on the portfolio company’s balance sheet.
Dividend recapitalization is often done as a way to free up money that a private equity firm can return to its investors without the need for an IPO, which can be risky.
Dividend recapitalization is an infrequent occurrence and is different from a company declaring regular dividends derived from profits.
Convertible preferred shares are a type of preferred shares that pay dividends and can be converted into ordinary shares at a fixed conversion rate after a certain period of time.
The dividend rate, expressed as a percentage or yield, is a financial ratio showing how much a company pays dividends annually in relation to its share price.
Dividend yield, displayed as a percentage, is the amount of money a company pays shareholders for holding shares divided by the current price of its shares.
A Dividend Received Deduction (DRD) applies to certain corporations that receive dividends from related entities and mitigates potential triple taxation effects.
Forward dividend yield is the percentage of a company’s current share price that the company expects to pay out in dividends over a specified period of time, usually 12 months.