In a letter to Berkshire Hathaway Inc shareholders in 1984, Warren Buffet made the following statement:
‘Dividend policy is often reported to shareholders, but seldom explained.
A company will say something like, “Our goal is to pay out 40% to 50% of earnings and to increase dividends at a rate at least equal to the rise in the CPI.” And that is it – no analysis will be supplied as to why that policy is best for the owners of the business.
Yet, allocation of capital is crucial to business and investment management. Because it is, we believe managers and owners should think hard about the circumstances under which earnings should be retained and under which they should be distributed.’
(Arnold 5th Ed pp 821)
Part 1:
Using the company selected for the first task that is listed on the FTSE 100 index, your discussion should outline the following:
1. Identify the company dividend policy with brief comments.
2. Provide a critical discussion of the company’s dividend policy. You will be required to provide supporting evidence. The discussion should be supported by dividend policy theory. use one relevant theory only and refer to a maximum of two journal articles.
