• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Dividend policy at Linear Technology

Extracts from this document...

Introduction

´╗┐Question 1 ________________ Linear Technology?s payout policy can be observed from Exhibit 3. From Q1 93 onwards, Linear has been steadily paying out dividends every quarter. Over the years, the dividends paid out to shareholders have also increased. From the dividend payout ratio (Appendix, Table 1), it is evident that especially in 2002 to 2003, dividends being distributed have increased from its previously steady ratio of approximately 0.100. Dividends in both years have increased despite the fall in net income. There were stock splits for Linear in 1993, 1996, 1999 and 2000. This meant that the residual shares owned increased, and that shareholders can then receive more dividends. However since dividend payout ratio remained fairly stable, this reflects greatly on Linear?s strong earnings. Question 2 ________________ Linear Technology has no financing needs, given its large cash balance of US$1.565 billion in 2003 and positive net cash flow from 1992. Net income has also been positive since 1992, with net income in the first 3 quarters of 2003 at US$170.6 million. Current liabilities stand at US$135.6 million[1], and long-term liabilities at $97.5 million. Accounts receivable as at March 2003 was at $83.6 million, current assets at $1.741 billion, leading to total assets of $2.031 billion. ...read more.

Middle

Also, in this case, the payment of dividends is unlikely to affect future earnings and profitability. Furthermore, since the payment of cash dividends does not involve a change in the number of shares, earnings per share would not be changed. If Linear repurchased shares at market price instead, market value of equity would be also reduced, but the share price would not be changed. But in some cases, share price might be increased by signalling theory, as the buyback of shares may indicate that management feels that the share is undervalued. Similarly, earnings would not be changed, but earnings per share would be increased from the reduction in number of shares. The results are summarized in Table 3 (Appendix). Question 4 ________________ A dividend is paid to shareholders through cash or shares as a return of profit for holding the stock. Firms may also choose to issue dividends in order to compete against other firms in the market for investor's money. There are many reasons for the change in rate of dividends. The first reason is due to competitors where the firm must change its rate in order to compete with competitor changes in dividends. Competitors in the market may push for higher dividends in years where the economy is doing better and lower their dividends in poor economic times. ...read more.

Conclusion

15% capital gains tax on sale of stock Share repurchase Gains treasury shares for use in stock options Positive signals to investors Lower cash balance Gains treasury shares for use in stock options Positive signals to investors Lower cash balance Stock price remains the same 1. 20% capital gains tax on sale of stock Stock price remains the same 1. 15% capital gains tax on sale o stock Special cash dividend Attracts more investors Lower cash balance Attracts more investors Lower cash balance Stock price falls by amount of dividend Tax on dividends 1. 38.6% Stock price falls by amount of dividend Tax on dividends 1. Viewed as return of capital gain, 15% ________________ Calculations for Question 3 Dividend payout ? Change in share price Share repurchase ? Change in Earnings per Share Table 3: Effects of Special Dividend and Share Repurchase Share price Earnings Earnings per share Special dividend $25.86 $170,600,000 $0.55 Share repurchase $30.87 $170,600,000 $0.65 ________________ Endnotes ________________ ________________ [1] Linear Technology. (2003). Linear Technology Corporation Consolidated Condensed Balance Sheets. http://cds.linear.com/docs/Investor/Linear_Technology_Earnings_PR_FY2003_Q3.pdf [2]MSCI Inc. (n.d).Global Industry Classification Standard (GICS). http://www.mscibarra.com/resources/pdfs/GICSSectorDefinitions.pdf [3]Krawczyk, K. and Wright, L. (Oct 2004).Dividends and Capital Gains Planning After the 2003 Tax Act. http://www.nysscpa.org/cpajournal/2004/1004/essentials/p36.htm [4] Taylor, J. (2002). Corporation Income Tax Brackets and Rates, 1909-2002. http://www.irs.gov/pub/irs-soi/02corate.pdf [5] Pettit, J. (2001). Is a Share Buyback Right for You? http://hbswk.hbs.edu/archive/2233.html [6] Mueller, J. (2009). Dividend Facts You May Not Know. http://www.investopedia.com/articles/stocks/07/dividend_implications.asp#axzz27S3Elt2p ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Business Studies section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Business Studies essays

  1. BP Financial analysis

    First broadcast, November 2010. Financial ratios can be used to: * Benchmark operational standards against industry averages and its competitors; * Analyse overall financial and operational health; and * Predict the results of future operations. * Liquidity (ability to pay current bills); * Activity (rates of inventory turnover and accounts receivable collection); * Leverage

  2. New business plan

    residents, it is attraction immigration and more and more Chinese origin people migrate to New Zealand. * Increasing population growth-New Zealand population is growing so the source of our customer is increasing * Increased trend to eating out at restaurants - the market data shows that the number of people

  1. MG 309 Strategic Management

    In selecting a business-level strategy, the firm determines: Who it will serve? What needs those target customers have that it will satisfy? How those needs will be satisfied? Purpose of a business-level is to differentiate the firm's position from those of its competitors.

  2. Free essay

    Media Planning for BMW ActiveHybrid 7. The BMW ActiveHybrid 7 was introduced in 2010. ...

    (Mercedes-Benz.com, 2010) In addition, Mercedes-Benz recently ranked the fourth (Volkswagen fifth, Fiat sixth) in the Ranking of First Hundred Large Companies in Europe. In the world's largest automobile company ranking, Mercedes-Benz only come after the U.S. General Motors, Ford and Toyota.

  1. Managing Change

    Additionally, General Insurance Consultants will now longer reside within the Human Resource Department. Their training and development will be undertaken in the General Insurance Department, under the management of the General Insurance Director. The Human Resource Department will then become entirely human resource oriented, which will as well increase the effectiveness and efficiency of the entity.

  2. Business plan for Laundry Toaster laundry dryer.

    more creative ways to reach this market to reinforce their brand and sell products. b) Pricing 1. To simplify billing to clients, the Laundry Toaster will work on a fixed pricing structure. Laundry Toaster will determine the standard pricing structure for each deliverable based on fix major product market.

  1. Ford Company Analysis - corporate structure and financial analysis

    The main purpose of the committee is: 1. Check management's plans to manage the company's exposure to financial risk 2. Review company's business plan, cash plan, balance sheet, and capital structure 3. Recommend dividend actions to the Board of Directors 4.

  2. Questions on Globalisation and International Trade

    India has posted impressive gains since 1991, however there are still impediments to further transformation. Attempts to reduce import tariffs have been stalled by political opposition from employers, employees, and politicians. Moreover, the privatization program has been slowed thanks to actions taken by the Supreme Court.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work