Question

please discuss an example of a real company that utilizes a dividend policy (providing support as appropriate) that you feel is appropriate in their circumstances. (200 words)

Answer 1

AT&T is an American conglomerate that has a steady dividend payout history. The firm has paid uninterrupted dividends since mid-1980 and has raised the annual payout for more than three decades. The firm has one of the highest dividend yields in Standard & Poor's 500-stock index. Despite the EPS volatility AT&T has experienced in the past, the firm has been able to increase quarterly dividends over the years.

With one reservation, I think AT&T’s dividend policy is appropriate in their circumstances. The company has enjoyed a steady stream of free cash flows that allows it to support regular dividend payout and dividend hike it has sustained over the years. The sales and EBIT growth has been steady in the past, which makes the business environment conducive to dividend payouts. However, such a steady stream of dividends also becomes like a debt obligation for the company. The shareholders expect the payout and any deviation could send the stock prices tumbling. Further, the telecom firms are likely to see an increase in their use of cash and a high dividend payout could be a problem for At&T in future. The firm must mitigate these challenges to balance shareholder's expected return.