Linear Technology

1059 Words Mar 26th, 2014 5 Pages
Linear Technology
Linear Technology is a technology company that focuses on the different elements of semiconductors. The company mostly focuses on analog products within the semiconductor portion of the electronic industry. Linear Technology was unique in their payout policy in the sense that they started with announcing dividends and then continued onto repurchasing. Linear started dividends to gain the respect of investors as well as show that buying shares in the company of Linear was less risky than all the other technology companies. Additionally, they repurchase stocks to offset the employee stock options that the company had as a large component of the employee compensation, which helped Linear in the years of low or slow
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Earnings and earnings per share are not affected by the dividend payout.

Another option Linear Technology has to exercise its excess cash balance, they can repurchase shares to increase the value of the firm. This repurchase option is beneficial to the company and shareholders because in an open market share repurchase has no effect on the stock price. In addition, by repurchasing shares the firm’s earnings and earnings per share will increase. As shown in Exhibit B, by calculating the total numbers of shares repurchased (total cash balance/price per share) and subtracting it from the number of shares outstanding will give us the number of shares left outstanding after the repurchase to be 261,703,052. Exhibit B shows how this decrease in the number of shares drove up the earnings per share value by $0.10 from $0.55 to $0.65. When the company repurchases shares instead of paying out in special dividends, the firm’s value will increase and it also allows the firm to retain its cash reserves within the company.
In general, companies pay dividends for a number of reasons. Dividends provide certainty about the company’s financial well being. Many investors prefer the steady and secure income that comes with dividends and see dividends as strength in the company and a sign of future positive earnings. Dividend initiators tend to be large and stable firms with low growth rates
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