Three decisions and three directions for money
A dividend moves cash from the company to shareholders. A buyback uses cash to acquire the company's own shares. A capital increase moves in the opposite direction: investors provide money and the company issues new shares.
They are therefore not interchangeable tools. One rewards shareholders, another moves shares into treasury and another brings in new funds and new securities.
The corporate-action dashboard
Every action starts with the same question: what is the best use of the company's cash and capital?
Dividend
- Per share
- ℬ 0.60
- Eligible shares
- 100,000
- Estimated total
- ℬ 60,000
Buyback
- Budget
- ℬ 120,000
- Price limit
- ℬ 42
- Estimated maximum
- 2,857 shares
Capital increase
- New shares
- 10,000
- Issue price
- ℬ 25
- Maximum target
- ℬ 250,000
The three actions are shown together for comparison. In a real decision, each should be assessed separately against the restrictions applying at the time.
The same company changes in different ways
| Action | Company cash | Number of shares | Main effect |
|---|---|---|---|
| Dividend | Decreases | Does not change | Rewards eligible shareholders. |
| Buyback | Decreases | Total issued shares do not increase | The company acquires its own shares. |
| Capital increase | Increases at finalisation | Increases by the subscribed amount | Raises capital and may dilute percentages. |
Dividend: separate announcement, entitlement and payment
The dividend is not delivered when the CEO declares it. The company sets an amount per share and three dates that organise the process.
How much money the company must reserve
When the dividend is declared, the system estimates the cost using shares held by shareholders. Treasury shares owned by the issuing company do not participate.
Retained results
The company must have enough accumulated results to support the declared dividend.
Available cash
Cash must cover the estimated amount when the action is declared.
Immediate reserve
The money stops being freely available and moves into the dividend reserve.
Declaring the dividend already reduces available cash
Although shareholders receive payment later, the CEO can no longer use that amount to compete, invest, repay debt or finance another action.
Buyback: a programme rather than an improvised purchase
The company does not place an unlimited order. It first announces a programme with a budget, maximum price and execution dates.
The calendar prevents immediate execution
The budget is also reserved from the beginning
That cash is no longer available for other decisions, even when the programme has not yet spent the full amount.
What changes when the company buys its shares
Shares in the market
- Total issued
- 100,000
- Treasury shares
- 0
- Outstanding
- 100,000
- Free cash
- ℬ 420,000
Part held in treasury
- Total issued
- 100,000
- Treasury shares
- 2,000
- Outstanding
- 98,000
- Cash used
- ℬ 82,000
Educational example. The purchased amount depends on market price, the programme limit and actual execution.
Capital increase: raise funds in two phases
A capital increase does not immediately open every share to the market. It first protects existing shareholders through a rights phase and then opens the remaining amount to other players.
Announcement
New shares, issue price and dates are communicated.
Rights
Existing shareholders may subscribe according to their initial position.
Market
Remaining shares open to any player or company.
Finalisation
Subscribed shares are delivered and reserved cash reaches the company.
How preferential rights are calculated
The company takes a shareholder snapshot when the capital increase is announced. Each holder's approximate entitlement depends on their proportion of the shares then outstanding.
Having rights does not force the shareholder to use them
The shareholder may subscribe, preserve cash or allow remaining shares to move into the open-market phase.
Subscription reserves money but does not yet deliver shares
While the operation remains open, money is reserved in the subscriber's portfolio. The company does not receive it permanently and the new shares are not delivered until the operation closes.
Only the amount actually subscribed counts at closing
The 2,200 unsubscribed shares do not enter the company's capital. Total shares increase only by 7,800 and the company receives the cash linked to those subscriptions.
Dilution changes percentages rather than deleting shares
100,000 shares
- Shareholder A
- 40,000 · 40%
- Shareholder B
- 25,000 · 25%
- Other holders
- 35,000 · 35%
- Cash raised
- ℬ 0
110,000 shares
- Shareholder A
- 40,000 · 36.36%
- Shareholder B
- 27,000 · 24.55%
- Other holders
- 43,000 · 39.09%
- Cash raised
- ℬ 250,000
Shareholder A still owns 40,000 shares
Their percentage is lower because more shares now exist. That difference may affect board weight and company control.
A company in default cannot ignore its creditors
When debt is in default, the company cannot start new capital increases, dividends or buyback programmes. The financial breach must be addressed first.
The priority becomes restoring payment capacity rather than distributing cash or reorganising capital.
Which action fits each need
Common mistakes
Distributing all cash
An attractive dividend may leave the company unable to compete, invest or meet obligations.
Buying back at any price
The limit prevents the programme from using cash under unreasonable conditions.
Ignoring rights
Shareholders who do not subscribe may see their percentage fall when new shares are issued.
Confusing reservation with final spending
Dividends and buybacks reserve company cash; capital increases reserve subscriber cash until finalisation.
CEO checklist before deciding
Cash
How much liquidity will remain after reserving or executing the action?
Results
Are profits and retained results sufficient?
Debt
Are there maturities, pending coupons or an active default?
Shareholders
How will return and ownership weight change?
Price
Are the dividend, buyback or issue terms reasonable?
Strategy
Does the action solve a real need or only seek an immediate reaction?
Frequently asked questions
Which actions can a listed company perform?
It may declare dividends, create buyback programmes and launch capital increases when all conditions are met.
Is the dividend paid when it is declared?
No. The amount is reserved, the shareholder snapshot is taken on the ex-date and payment occurs on the selected date.
What does a company need to declare a dividend?
Sufficient retained results and cash to cover the estimated amount.
How does a buyback work?
The company reserves a budget, sets a maximum price and defines an execution period.
What are preferential rights?
They are the initial opportunity for existing shareholders to subscribe according to their previous holding.
Are all planned capital-increase shares always issued?
No. Only shares actually subscribed are issued when the action is finalised.