Dividends: Notes

1. Using the excel spreadsheet provided, and the recommended consequential disclosures as a basis you your analysis, what recommendations would you give Phillips on each of the items listed below? In each case, justify your recommendations and estimate how much the decision will change the “true” value of the company and its value in the eyes of an investor in a private company.

The dividend policy has grown over the years. This may be so that the company projects itself as a less risky share and thus also gaining investors faith. The investors buy its shares and thus increase its demand. This helps to gives positive signals to the investors signalling that the company is stable and can generate earnings steadily. This hypothesis is gains standing from the dividend hypothesis theory.

1. Using the current ratio, discuss what conclusions you can make about each company’s ability to pay current liabilities (debt).

4. Did the cash flow from operations cover both the capital expenditures and the firm’s dividend payments, if any?

Identify two ways in which a shareholder can realize a return on a share investment. Describe the relationship between them.

2. Compare and contrast the nature of cash flows stemming from an investment in stock with those coming from bonds.

When a company decides to pay dividends, it has to be careful on how much it will be given to the shareholders. It is of no use to pay shareholders dividends

When a company generates a profit, management has one of two choices: They can either pay it out to shareholders as a cash dividend, or retain the earnings and reinvest them in the business.

1. How would you characterize the business risk of Bed Bath & Beyond? Review their financial performance.

a. What are Q’s EPS and dividends next year? How will EPS and dividends grow in years 2, 3, 4, and 5 and subsequent years?

c. How should FPL choose between dividends and share repurchases as alternative modes of payment?

By cutting dividends, FPL can react better to future threats. After an initial panic selling triggered by the news shock (FPL never cut its dividend in the past 47 years), investors will process the new information realized that the dividend cut is balanced by an increased growth rate in the future. To justify the HOLD recommendation on the

1. Why do firms pay dividend? What, in general, are the advantages and disadvantages of paying cash dividends?

The fact that shareholders are taxed twice through this repayment methodology infers that dividends are not their repayment technique of choice. Furthermore, paying out cash reserves through dividends also has the effect of both reducing the company’s assets and also inhibited the company’s ability to fund future growth as Dividends reduce the company’s retained earnings.

1) Do you believe that Porsche’s management is appropriately concerned with stockholder wealth? Does Porsche’s ownership structure work to the benefit or detriment of public shareholders?