Question

What does the composition of shareholder groups within a corporation have to do with dividend policy? Based on the majority shareholding groups and their relative proportions of ownership in the company, what sort of dividend policy should NuSkin adopt?

Answer 1

There are two ways in which a company can distribute returns among shareholders:

1. Dividends - Distribution of a company's excess earnings to its shareholders. It can be in various forms, the main forms being cash and stock.

2. Share Buybacks/Repurchases - In the simplest terms, it is that situation where the company buys back its own shares from the shareholders.

Dividend distribution depends on a number of factors including earnings consistency, nature of the company's operations, business stage the company lies in, although majorly it depends on the shareholder composition of the company. Companies that constitute highly of institutional investors tend not to distribute dividends while those companies who have a vast individual investor base largely distribute dividends. In other words, growth seekers do not prefer share repurchases while income seekers prefer dividends.

Nu Skin is a relatively established company that began its operations in 1990. The company has been paying steadily increasing dividends since 2013. Although, a majority of about 76% of the company comprise of institutional investors. The company has been experiencing falling share prices also. The company should ideally retain as much of the profits as possible and look for opportunities for expansion and improvement. Although, the stoppage of dividend payment is a bad signal for any such company. Therefore, the ideal strategy for the company would be to keep paying steady dividends but not as often as they do currently. They could instead opt for sayonce a year dividend payments and retain the rest for profitable opportunities.