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Analysis of Dividend Policies: Case Studies of The Limited, Tata Chemicals, and Disney, Slides of Fundamentals of E-Commerce

Fakir Mohan UniversityFundamentals of E-Commerce

An analysis of dividend policies of various companies through case studies of the limited (1983-1992), tata chemicals (2009), and disney. The analysis includes calculations of average, standard deviation, maximum, and minimum dividends, free cash flow to equity, dividend payout ratio, and cash paid as percentage of fcfe. The document also discusses the impact of dividends on stockholder base and the applicability of the peer group approach in assessing dividend policies.

Typology: Slides

2012/2013

Uploaded on 07/29/2013

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207!
Case'4:'The'Limited:'Summary'of'Dividend'
Policy:'1983`1992'
207!
Summary of calculations!
Average!Standard Deviation!Maximum!Minimum!
Free CF to Equity!($34.20)!$109.74!$96.89!($242.17)!
Dividends!$40.87!$32.79!$101.36!$5.97!
Dividends+Repurchases!$40.87!$32.79!$101.36!$5.97!
Dividend Payout Ratio!18.59%!
Cash Paid as % of FCFE!-119.52%!
ROE - Required return!1.69%!19.07%!29.26%!-19.84%!
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Download Analysis of Dividend Policies: Case Studies of The Limited, Tata Chemicals, and Disney and more Slides Fundamentals of E-Commerce in PDF only on Docsity!

Case 4: The Limited: Summary of Dividend

Policy: 1983-­‐

207

Summary of calculations Average Standard Deviation Maximum Minimum Free CF to Equity ($34.20) $109.74 $96.89 ($242.17) Dividends $40.87 $32.79 $101.36 $5. Dividends+Repurchases $40.87 $32.79 $101.36 $5.

Dividend Payout Ratio 18.59% Cash Paid as % of FCFE -119.52%

ROE - Required return 1.69% 19.07% 29.26% -19.84%

Growth Firms and Dividends

208

¨ High growth firms are someRmes advised to iniRate

dividends because its increases the potenRal

stockholder base for the company (since there are

some investors -­‐ like pension funds -­‐ that cannot buy

stocks that do not pay dividends) and, by extension,

the stock price. Do you agree with this argument?

a. Yes

b. No

¨ Why?

Summing up…

210

ApplicaRon Test: Assessing your firm’s dividend

policy

211

¨ Compare your firm’s dividends to its FCFE, looking at

the last 5 years of informaRon.

¨ Based upon your earlier analysis of your firm’s project

choices, would you encourage the firm to return more

cash or less cash to its owners?

¨ If you would encourage it to return more cash, what

form should it take (dividends versus stock buybacks)?

Peer Group Approach: Deutsche Bank

213

Peer Group Approach: Aracruz and Tata

Chemicals

214

Using the market regression on Disney

216

¨ To illustrate the applicability of the market regression in analyzing the

dividend policy of Disney, we esRmate the values of the independent

variables in the regressions for the firm.

¤ Insider holdings at Disney (as % of outstanding stock) = 7.70%
¤ Standard DeviaRon in Disney stock prices = 19.30%
¤ Disney’s ROE = 13.05%
¤ Expected growth in earnings per share (Analyst esRmates) = 14.50%

¨ SubsRtuRng into the regression equaRons for the dividend payout raRo

and dividend yield, we esRmate a predicted payout raRo:

¤ Predicted Payout = 0.683 – 0.185 (.1305) -­‐1.07 (.1930) – 0.313 (.145) =0.
¤ Predicted Yield = 0.039 – 0.039 (.1930) – 0.010 (.077) – 0.093 (.145) =.

¨ Based on this analysis, Disney with its dividend yield of 1.67% and a

payout raRo of approximately 20% is paying too liple in dividends. This

analysis, however, fails to factor in the huge stock buybacks made by

Disney over the last few years.