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How would you describe your chosen company’s dividend policy?

A publicly traded company that issues stocks shares its profits with shareholders through dividends, which are essentially payments.  According to Byrd, Hickman & McPherson (2013), “a residual dividend policy prescribes funding all positive NPV projects first and then determining the dividend payment” (p. 296).  According to the Securities and Exchange Commission (SEC) (2018), Google’s dividend policy states “we have never declared or paid any cash dividend on our common or capital stock and we do not expect to pay any cash dividends in the foreseeable future” (10-K, Part II, item 5).  Therefore, it appears through Google’s annual report, that the company does not pay a dividend to its stockholders. 

Why do you believe this company chose the dividend policy they have in place? 

It would seem that the company choses this particular policy because of the number of brokers and stockholders owning its stock are too many for the company to be able to probably pay out.  According to the SEC (2018), “because many of our shares of Class A common stock and Class C capital stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders” (10-K, Part II, item 5).  Google’s strategy to having this policy may be so the company has more money to reinvest. 

Do you agree or disagree that they have selected the best dividend policy for the company?

I disagree with this policy, for a few reasons.  First is that a company that chooses to sell stock to increase revenues should pay out to its shareholders when profits are made.  Afterall just as the company wants to make profits, so do stockholders, hence why they invest.  Additionally, the business should make it known to its holders what it is doing with the profits.  For instance, if it is to have money to reinvest, then stockholders should be informed and agree with these decisions.  Afterall it’s their money that is essentially being used to make the company potentially more money.  The practice to me seems a bit unscrupulous, because it’s like loaning a friend money because they can’t pay their bills and then you see them out at the mall shopping.

How might this dividend policy function in both perfect and imperfect capital markets?

Dividend policies can differ dependent on perfect and imperfect capital markets.  According to Miller & Modigliani (as cited by Baumol, 1963), “in a perfect market, where perfect certainty and rationality prevail, the dividend policy of a corporation is economically irrelevant-it will affect nether the current price of its shares not the total return of its shareholders” (p.112).  However, in an imperfect market the rate of taxes would exceed the rate on capital gains (Baumol, 1963).  Therefore, in this market a company would chose to pay no dividends. 

Calculate the dividend rate over the past 5 years. Define why you believe that it has or has not changed over the last 5 years.

Over the past 5 years if a dividend rate would have been paid $6.25  It appears that the rate would have changes due to increase revenues that the company incurred.  For example, the company’s income data shows it took in $66 million in 2014 and $136 million in 2018. 

References:

Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version]. Retrieved from

https://content.ashford.edu/ (Links to an external site.)

William J. Baumol. (1963). On Dividend Policy and Market Imperfection. The Journal of Business, 36(1), 112. Retrieved from http://search.ebscohost.com.proxy-library.ashford.edu/login.aspx?direct=true&db=edsjsr&AN=edsjsr.2350460&site=eds-live&scope=site.

Respond to…

Walt Disney was started in 1923, and became the largest theme park in the world.   The Walt Disney Company operates internationally as an entertainment company along with its subsidiaries. The company operates in five segments: Media Networks, Parks and Resorts, Consumer Products, Studio Entertainment, and Digital. The Porter Five Forces describes the challenges of new entrants, the threat of alternatives, consumer negotiating power, manufacturer bargaining power and intensity. Walt Disney is not particularly concerned about new entrants in the company as they have a strong follower and have dominated the market so deeply that any new entrants will face the challenge of stealing Disney’s market share. With regard to the challenge of replacements, the Disney Consumer Products division must be wary of Barbie, Mattel Toys and Nerf, as they cater to them. Additionally this issue spreads to video games (Disney Interactive), as there are many types of gaming system formats, as well as several producers, that can be obtained by the consumer besides Disney. As with customer and supplier bargaining power, there is very little.

Since 1995 to 2015, the company has steadily paid dividends, and one of the best track records of gradually increasing its dividends year after year. In the last few years, Walt Disney has made substantial growth. A dividend is a return payment to shareholders. This may be a private or a public company. Many businesses operate as private companies (meaning they do not sell stock on the market). When a company agrees that they will sell stock, they make an announcement that they will go public. Walt Disney is a public company, trading under the name DIS on NASDAQ. Walt Disney’s current stock market value, as of February 2020, is $141.42 per share. Walt Disney Form 10-K of the Company for the fiscal year ended October 1, 2019 with 1,078 million shares as of March 20, 2019. $0.88 per share, payable January 16, 2020 to shareholders of record as of December 16, 2019 at the close of business. The Walt Disney Company is reporting $0.88 per share for the semi-annual cash dividend. The payout takes our cumulative fiscal year dividends to $1.72.

Walt Disney Co’s Dividends per share for the three months ending in December 2019 are $0.88. The average Dividends per Share Growth Rate of The Walt Disney Co for the last 12 months was 2.30 percent per annum. The average dividend per share growth rate has been 7.40 per cent per year over the past 3 years. The cumulative dividend per share growth rate has been 10.40 per cent per year over the past 5 years. The Walt Disney Co’s highest 3-year average dividend per share growth rate has been 44.50 per cent per year over the past 13 years. The lowest annual figure was 0.00 per cent. And the rate was 9.00 per cent. The Dividend Payout Ratio for the three months ending in Dec. 2019 was 0.75 for the Walt Disney Co. As of today, the rate of the dividend yield of the Walt Disney Co is 1.23 percent.

 Walt Disney: More than Toons, Theme Parks.  Yet his influence on American culture has extended beyond cartoons and theme parks. Whether it was television programs like the “Mickey Mouse Club” or the promotion of goods, Disney has influenced our culture. With each new world attraction added at the theme parks, Walt Disney has shown considerable growth in net sales.  In 2016, Harry Potter world theme park operator worldwide, with  attractions are up 0.7% to 138.9 million. 8 million tourists, a 13.9% rise in occupancy compared to the previous year.