ISSUE: Should we pay dividends?

ISSUE: Should we pay dividends?

PRELUDE: Over the years, General Electric [GE]the firm has performed well and now (mid 2017) they have a new CEO. The handsome dividends paid in the past maybe cut by 50%. GE is now at the stage that it is overextended – this poses two problems:

1.   The GE portfolio could be too large,

2.   Dividend payments are not sustainable.

There has to be a new strategy.

INFORMATION.

Academic studies:

John Lintner a Professor at the Harvard Business School in the 50’s, through interviews, gathered that investors prefer dividends and that CFO’s have a target payout ratio that they wish to achieve in the long run.

Miller & Modigliani (of capital structure fame) in a seminal paper show that dividends are irrelevant. Investors who wish for a dividend can adjust their ownership in stock. They go on to say that, dividends at the least, must be a byproduct of their capital investment policy, which essentially means do not forego positive NPV projects..

           Practice:

Firms may choose to use funds and pay dividends.

Firms may wish to avoid establishing a cash paying policy thereby, not creating an expectation in the market. A share buyback will be appropriate.

Non-cash dividends can be stock splits or stock dividends.

           What we know:

•     Aggregate payouts are big and increasing.

•     A small number of large and mature firms pay dividends.

•     Managers are reluctant to cut dividends.

•     Managers smooth dividends.

•     Stock prices react to unanticipated changes in dividends.

Financial projections:

I have constructed pro forma Income and Balance Sheet statements. Using very restrictive assumptions to some optimistic ones, I can safely state that GE has to rethink its position.

•     GE has too many business interests in many segments.

•     Some lines are not as profitable as others.

•     IF some lines are sold and the GE gets a ‘new’ focus, then, it may need make sure it has an adequate cash flow to service debt.

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more