Case 19 - Georgia Case Atlantic

922 WordsJun 4, 20124 Pages
Case 19 – Georgia Atlantic Company (Dividend Policy) Critique the 6 alternative dividend policies proposed by Abe Markowitz. Discuss the implications of each for Georgia Atlantic Company. Make your recommendation on which is the best for the shareholders and state the reasons why. Solution No Cash Dividends, No Stock Dividend or Split This strategy will be the worst possible choice for Georgia Atlantic. This is due to the fact that the company’s recent Market-to-Book value is well below 1. This is an indicator that the company has not invested in any profitable projects anymore. The share price of the company will also stay rather constant. This would mean that the price would rarely exceed the optimal range of $20 to $40. It…show more content…
Since the optimal range of share price is in the range of $20 - $40, Georgia Atlantic should consider making their share price to around $30. In order to do this, they will have to declare a stock split of 63 to 1. Every shareholder will then have with them 63 new shares for each share that they already had. Since more shareholder are able to purchase Georgia Atlantic shares due to the large stock split, the liquidity of the shares will also be increased due to the lower price of the share. Immediate Cash Dividend plus a Large Stock Dividend As mentioned before, the problem that lies with Georgia Atlantic is its high share price. A large stock dividend will not help reduce the share price. To some extent, it might be able to slightly lower the share price but more often than not large stock dividend will continue to maintain the share price. As mentioned in strategy 2, the shareholders value will increase due to the immediate cash dividend but the share price will continue to be high and this will deter potential investors. Cash Dividend, Stock Split, and Periodic Stock Dividends This strategy is the combination of the three previous strategy discussed. This strategy might seem to be the most promising. Regardless of everything, Georgia Atlantic is a value firm and paying out cash dividend has to be in its strategy. The cash dividend will not only please the investor but will also increase the shareholder value. This will be
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