Project #45138 - Payout Policy

Introduction

Establishing a dividend payout policy is an important factor in managing an organizations finances. Not paying dividends can allow for reinvesting money in research and development of new products, but it may also discourage investors.

Instructions

For this assignment identify factors that companies might need to consider in developing their payout policy. Consider the following example from the Wall Street Journal about Apple:

Apple is a company that has had a substantial impact on aviation through the launch of its iPad tablet. Many airlines are using the iPad instead of paper manuals both in the flight deck and in the maintenance areas.

Apple, like many technology companies, preferred to reinvest its earnings into research and development and its supply chain. Apple founder Steve Jobs preferred this approach to running the business and many other technology companies did the same until recently. Microsoft and Oracle were two other technology companies that ploughed back earnings into the business rather than paying dividends until this past decade. 

But with the death of Steve Jobs and promotion of Tim Cook as CEO, a new approach to dividends has emerged. Apple announced in March 2012 that it will pay out a quarterly dividend of $2.65 a share beginning in July of 2012.

What makes this unusual from Microsoft and Oracle is that both of these companies were considered to be in a slower growth phase of their businesses, while Apple continues to grow. 

It appears that Apple’s Board of Directors, that approved the dividend payout, does not believe in the irrelevance of dividends and that they really do matter to investors.

Source: March 20, 2012 Wall Street Journal

Initially Apple, like Microsoft and Oracle had established a policy to reinvest earnings, but recently changed. List at least 3 factors company leaders would want to consider in making such a decision and explain why they are important.

Subject Business
Due By (Pacific Time) 11/05/2014 12:00 am
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