Question

FIN 210

Alternative dividend policies:

Given the earnings per share over the period 2012​-2019 shown in the following​ table, determine the annual dividend per share under each of the policies set forth in parts a throughd.

1. Pay out 60​% of earnings in all years with positive earnings.
2. Pay $0.50 per share and increase to $0.70 per share whenever earnings per share rise above $1.10 per share for two consecutive years.
3. Pay $0.50 per share except when earnings exceed $1.20 per​ share, in which case pay an extra dividend of 70​% of earnings above $1.20 per share.
4. Combine policies in parts b and c. When the dividend is raised​ (in part b​), raise the excess dividend base​ (in part c​) from $1.20 to $1.30 per share.
5. Compare and contrast each of the dividend policies described in parts a throughd.

Year	EPS
2019	$1.38
2018	$1.69
2017	$1.02
2016	$-0.73
2015	$1.07
2014	$0.53
2013	$0.99
2012	$0.36

Which policy uses a​ constant-payout ratio?

1. The policy described in part c is a​ constant-payout ratio which will yield low or no dividends if earnings decline or a loss occurs.
2. The policy described in part d is a​ constant-payout ratio which will yield low or no dividends if earnings decline or a loss occurs.
3. The policy described in part b is a​ constant-payout ratio which will yield low or no dividends if earnings decline or a loss occurs
4. The policy described in part a is a​ constant-payout ratio which will yield low or no dividends if earnings decline or a loss occurs.

Which policy uses a regular​ dividend?

1. Policy described in part b uses a regular dividend policy which minimizes the​ owners' uncertainty of earnings.
2. Policy described in part c uses a regular dividend policy which minimizes the​ owners' uncertainty of earnings.
3. Policy described in part a uses a regular dividend policy which minimizes the​ owners' uncertainty of earnings.
4. Policy described in part d uses a regular dividend policy which minimizes the​ owners' uncertainty of earnings

Which policy uses a​ low-regular-and-extra dividend​ policy?

1. Policy described in part a uses a​ low-regular-and-extra policy giving investors a stable income.
2. Policy described in part d uses a​ low-regular-and-extra policy giving investors a stable income.
3. Policy described in part c uses a​ low-regular-and-extra policy giving investors a stable income.
4. Policy described in part b uses a​ low-regular-and-extra policy giving investors a stable income

Which policy provides the stability of a regular dividend but allows for future dividend​ growth

1. Policy described in part a provides the stability of a regular dividend but allows for larger future growth of dividends.
2. Policy described in part d provides the stability of a regular dividend but allows for larger future growth of dividends.
3. Policy described in part b provides the stability of a regular dividend but allows for larger future growth of dividends.
4. Policy described in part c provides the stability of a regular dividend but allows for larger future growth of dividends.

Answer 1

Year	E P S	Part A	Part B	Part C	Part D
2012	0.36	0.216	0.5	0.5	0.5
2013	0.99	0.594	0.5	0.5	0.5
2014	0.53	0.318	0.5	0.5	0.5
2015	1.07	0.642	0.5	0.5	0.5
2016	- 0.73	0	0.5	0.5	0.5
2017	1.02	0.612	0.5	0.5	0.5
2018	1.69	1.014	0.5	0.5 + .7 (1.69-1.2) =0.843	0.5
2019	1.38	0.828	0.7	0.5 + 0.7 (1.38- 1.2) =0.626	0.7 + 0.7 (1.38 - 1.3) =0.756
Dividend policy		Constant payout ratio	Regular dividend	low regular and extra dividend policy	regular dividend plus large future growth