Stock Valuation Analysis

Better Essays

Stock Valuation
The value of a company’s stock may entice an investor to offer money. Without knowing the proper value of stocks, investors are hard-pressed to find the right time to buy or sell shares; and investors may miss opportunities solely on the stock’s market value (Zacks, n.d.). The following sections shall (1) calculate the Company’s SV based on its dividends*; and (2) discuss both those calculations’ effect on shareholder value* and the Company’s dividend policies.
To begin the calculations, the data points of cash dividend* per share, dividend yield*, and the stockholder’s equity* from the Company’s FY2012-14 financial statements are required. To obtain the dividend yield, the following equation shall be …show more content…

Keeping the Company’s goal of maximizing shareholder value in mind, the best option based on the aforementioned calculations is for the Company to increase dividend per share by $1.75. A crucial source for increases in a business’s dividend per share payout is a swing in growth strategy leading to the business’s decision to expend less of its earnings in seeking growth and expansion, thus leaving a greater segment of profits available to be given to investors in the form of dividends (Maverick, 2015). The uptick in dividend per share gives an investor more “bang for their buck” as it ultimately affects the ROI. Further, this is apparent when comparing recalculated ROI. In Table 3: ROI Comparisons, ROI #1 represents the ROI based on actual dividends per share; ROI #2 represents the recalculation based on the $1.75 increase.
Table 3: ROI Comparisons
Fiscal Year (FY) ROI #1 ROI #2 % Increase
2012 1.67% 3.42% 205%
2013 1.71% 3.46% 203%
2014 2.24% 3.99% 178%

Based on the comparison, the increased dividend per share clearly supports the idea of shareholder maximization, while the other options are not as supportive.
Dividend Policies
The Company has noted that, in addition to making disciplined decisions regarding capital allocations, focus has been maintained on expense control, resulting in higher returns on invested capital and allowing for a return of value to shareholders through $7.0 billion in share repurchases and $2.5

Get Access