Question

HARLAND CORP has been in existence for 45 years. Over the past, 6 years the stock price has stagnated and remained between $22.15 and $22.82. The CEO, who started the company, believes that the stock price needs to be higher, and the best way to do that is to pay a dividend to increase the demand for the stock. The company has never paid a dividend in their history. The CEO needs to determine what type of dividend policy to follow, and how much the first dividend should be, so he comes to you for advice. He provides you with the following historical information as it relates to the company’s earnings per share (as an aside, dividends per share should not exceed EPS unless the firm is liquidating):

YEAR                                                      EPS

                2017                                                       $2.36

                2016                                                       $2.12

                2015                                                       $0.81

                2014                                                       $2.01

                2013                                                       $2.09

                2012                                                       $2.44

                2011                                                       $2.31

                2010                                                       $2.01

You are to prepare a brief memo (1 page, single-spaced) as to what dividend policy you recommend, why you recommend it, what initial dividend amount you recommend, and why you recommend that amount.

Answer 1

Hi I am Providing you the Image file of Word Document, in which i have witten a memo for you.

In real Life there are 3 types of Policy

Residual Policy: In this Policy the company apply the Earned fund to their required investment Project and if they have any fund left over after that investment they payout that as a dividened. In the Current situation we cannot apply this because we dont know how much the fund is required for investment and so we cannot apply residual policy.

Dividend Stability Policy: In this policy the company payout the fixed percentage of earnings to their shareholders. Now the payment can be Quarterly, Half-Yearly or Annually as the case may be. In the Given case we have seen that the company has stable earning in previous years and hence the company should choose the dividened stability policy. To attract its investors the company should pay a moderate and little bit higher then the Industry average dividend.

Please hit the thumps up if you like it and feel free to comment