• 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

    It plans not to pay any dividends payments for the first three quarters of 2010, and will evaluate whether to make any payments for the fourth quarter. Market reaction post oil spill BP has traditionally been popular with investors partly due to its reliable dividends payments, as shown by the

  2. New business plan

    Corporate Businessman The third group is for corporate meetings. At first glance, this might seem to be in contradiction with our theme of adventure and culture. However, this is not so. Emperor's House enables businessman to express their wish to be as successful and powerful as the emperor. Like golf, it gives them time to relax and enjoy the premises when they talk to clients.

  1. MG 309 Strategic Management

    According to: www.businessplans.org/Market.htm- a Cost Leadership Strategy is based the concept that you can produce and market a good quality product or service at a lower cost than your competitors. According to www.cimdata.com/newsletter/2005/42/04/42.04.02.htm Cost Leadership as a strategy for capitalizing on changed market conditions at the right time.

  2. 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.

  1. Orgnizationl, Theory, Change & Culture

    Committees are often the most reliable way to make decisions. Condorcet's jury theorem proved that if the average member votes better than a roll of dice, then adding more members increases the number of majorities that can come to a correct vote (however correctness is defined).

  2. Business plan for Laundry Toaster laundry dryer.

    Source: MTW 1. Compare competing and substitute products or services on the basis of market share, quality, price, performance, delivery, timing, service warranties, and other pertinent features. Answer 1. Quality Our product is highly in a good quality because in manufacturing processes, it involves highly skilled engineers and operators.

  1. Ford Company Analysis - corporate structure and financial analysis

    and recommending to the board for selection the candidates for all directorships to be filled by the Board or by the shareholders 2. Developing and recommending to the Board a set of corporate governance principles suitable to the company 1.

  2. Questions on Globalisation and International Trade

    What other factors does Sen think should be included in an assessment of development? How might adoption of Sen?s views influence government policy? Do you think Sen is correct that development is about more than just economic development? Explain. Answer: Sen has argued that development be assessed less by material

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