In: Finance
Question 1
A-Select a publicly traded company, and describe its current distribution policy. (Pick any company you'd like)
B-Describe the procedures the company followed when it made the last distribution through dividend payments or through a stock repurchase.
C- Analyze how the last distribution impacted the company's intrinsic stock price per share.
D- Evaluate the company's current distribution policy, i.e. discuss the advantages and disadvantages of the company's current distribution policy.
Ans A ) IBM is also called the International business machines and nick named as Deep blue.The company is a technological giant.And it has diverse interest in computer hardware , software and middleware and technological health care facilities along with consultation and outsourcing. IBM shares are traded in New York stock exchange. It is listed as (NYSE: IBM).The tech companies are not impressive in dividend payout , but IBM has a long history of payment of the dividend. IBM pays quarterly dividend of about $ 1.62 per share or $ 6.48 annualised with a dividend payout of 4.6% taken as the base as recent market price. IBM has a rich history of paying quarterly dividend since 1916. IBM dividend is growing steadly from last 20 years.
Ans B) IBM has expected to produce earning of $ 12.81 as against the target of $ 13.90 because of the acquisation cost of Red Hat . The payout ration of IBM is around 48.1 % which means the dividend accounts for almost half the company profit.In ordenarily way aa part of profit is used for share buyback but due to the acquisition of Red Hat a technology company the company has restricted the share buyback policy and focusses of repayment of debt.
Ans C ) IBM paid last declared and paid dividend Feb 2020 which is $1.62 per sahre. And the impact of the consistency of declaring devidend helped to raise the share price to $ 112 and recently close price is $119 per share. Which reflects the positive impact of the consistency in payment of dividend.
Ans D.) The consistency in payement of dividend to shareholders have helped the IBM stock to grow and intern the fellow technology companies are not that consistence with the payment of dividend. Hence it makes IBM shares more attractive and keeping in mind the growth strategy the company is aiming and the new innovative steps it is taking the shareholders are in confidence of good return , that confidence in investors give confidence to the company and create an environment of trust with the other stakeholders as creditors , banks ,government that raises the goodwill of the company also. But at times such a high pay -out percent will hamper the new investment scenario as well the company is always in a pressure to give high dividends to the shareholders and for that it started to reduces cost of operations but some times such kinds of steps reduces the efficiency and employee satisfaction in the company which is very essential for the innovation and expansion.