How to hedge a dividend capture investment program
Article Abstract:
Dividend capture is an investment strategy used by corporations that are in a high tax bracket and have excess cash. It is also used to increase after-tax returns on cash portfolios in a period of declining or flat interest rates. A dividend capture is accomplished by purchasing the stock of a corporation in order to get a quarterly dividend and holding the stock for the minimum period. At the same time, the holding position is hedged on the options market to reduce risk. Two common hedging techniques are writing call options, known as 'buy-write' transactions, and purchasing Treasury Bond put options. Writing call options indirectly reduces the purchase price of the stock and protects against stock price declines. T-bond put options are purchased when the common stock purchased does not trade options, and to protect against falling stock prices caused by interest rate increases.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1986
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Leasing as a financing tool
Article Abstract:
Companies that are in no position to purchase equipment (especially after the 1982 recession) find that equipment leasing improves their cash flow, provides almost 100 percent financing, and does not show up as additional debt on financial statements. Leasing equipment is popular because of these economic benefits; approximately 80 percent of U.S. corporations have transacted lease agreements and $93 billion was spent on leasing activities in 1985. Lessors should have expertise and credibility, be ready to tailor the lease to meet individual company needs and repayment scheduling requirements, and be able to make rapid decisions on lessee financial requests. The lending institution should also be able to provide a consistent source of funding.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1986
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Leasing strategies after tax reform
Article Abstract:
The benefits of equipment leasing have not been seriously affected by the Tax Reform Act of 1986, but the Act has changed the environment in which leasing decisions are made. The new alternative minimum (AMT) tax makes it more difficult for corporations to write off tax preference items. Equipment leasing, however, does not add to corporate AMT liability. Leasing also has advantages over ownership when calculating depreciation under the modified accelerated cost recovery system. The repeal of the investment tax credit (ITC) also makes leasing more attractive, because the loss of the ITC will effectively increase the purchase price of new equipment by 10 percent and speed up depreciation on used equipment.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1987
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