Essay Dividend Policy at Linear Technology

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Dividend Policy at Linear Technology
Of the 16 companies on the SOX index, six paid dividends and Linear Technology is one of them started at the second quarter in 1993 which is 5.3 million in total. However, in the case, according to Coghlan, “The quarterly dividend was initially set at $0.05 per share. This amounted to $8.3 million, or 15% of FY 1994 earnings.” And their most recent dividend in 2002(cause in the exhibit2, there’s only threes quarter’s data in 2003, so that’s why I choose 2002 as the last year), the dividend was $0.17 per share amounted to 54 million total. Through out the decade, the company’s dividend generally increased and so did share repurchase except 1997 and 2000 which is 11.6 and 0. Their cash flow almost
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But the dividend will increase 47 million in order to compensate the stockholder for the loss of the share price. Earning per share will changed by 47m/312.4m=0.15 per share. However, if the company decided to repurchase the share, (share price is 30.87), the market value of Linear will drop by 1565.2 million and the share outstanding will be 312.4m-(1565.2m/30.87)=312.4-5.36=307.04 million. The stock price will decreased by 47m/307.04m=0.153.
Return cash by paying dividend can also imply the invstors that the company growing rapidly and can generate profit. And some of the investment company only invests the companies with dividend payment, which means the investment company also consider the firm with dividend payment as reliability. But sometimes, the manager also worried about paying dividend would cause the price dropped because investor would see dividend payment as a signal of declining the price.
It is highly recommended that the company should payout the excess cash as dividend partially and maintain sufficient cash to the capital expenditure just in case the company got negative cash flow in the next several periods. Again, even though paying out as dividend can largely benefit the company,the company should also need reserve some

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