Need help with a one pager We have seen examples of firms th

Need help with a one pager: We have seen examples of firms that have announced dividends, stock splits, and reverse stock splits. The assigned research paper reading looked at firm’s decisions and what factors appear to affect payout decisions. For this activity you will write a short one page to one and a half page paper on a firm of your choosing meeting the following criteria: Publicly traded You can provide a link to the firm’s profile and financial summary (similar to what can be found in Yahoo finance (Links to an external site.)Links to an external site.). Note: this can be other websites and non U.S. stocks can be used as well An announcement that a firm has split, repurchased, dividend, or other payout discussed in the module’s readings in the past 3 months. The announcement could include the announcement of a firm cancelling their dividend payments as well as the various payouts. For the selected firm provide a brief profile of the firm including the primary businesses/industry of the firm. Provide an overview of the industry. Address issues such as whether the firm is considered being in a growth industry, mature industry and the role/impact your firm has on the industry. Discuss the payout strategy selected by your firm. What did the firm announce? Why did the firm make the announcement? Based on your study of dividends and other payouts does the strategy make sense? What signals is management sending with the announcement? Do you agree with the decision? As a shareholder would you be pleased with the announcement? Why or why not?

Solution

Here I am going to discuss different management approach to distribute free cash flow to shareholders 1st is dividend and 2nd buy back

I am belonging to india so will give example of indian company.

let\'s first discuss dividend :- it\'appropriation of profit or distribution of profit to shareholders.many psu in india are having high dividend yield almost 9% sometime like REC,PFC ,HIND ZINK etc. This type of high dividend will restrict it\'s growth rate I.e ROE (1-payout ratio) however majority shareholders in this company is government so it is obvious cash is going in the hand of government.I usually don\'t prefer this kind of stock for investment because if company is only paying dividend and not focusing on expansion through capex than one day it\'s going to collapse however company discussed earlier are having monopoly in the market so the company might not be shutdown but though it will restrict future sustainable growth rate.

More over some othe company in india like greaves cotton wich is in auto ancillary industry is also having div yield of 4% wich looks very attractive it is in the growth industry moreover due to introduction of electric vehicles in india many small players will vanish.Furthermore it is engaged in making gas vehicles engine wich are in huge demand.

Now let\'s discuss buy back:- in india market this word is spreading like anything

First I would like to discuss buy back of indian it giant TCS wich was @25% premium when it was announced.this is a great company having huge free cashflow so buy back of 10000 crore to 15000 crore won\'t affect it.moreover if this company distribute dividend of equal amount then it has to pay DDT on it wich will be more burdensome on company.I would happy to be shareholders of this company throughout my life.

secondly I would like to discuss the dark clouded buybacks which company is announcing 6 months before and then canceling later on. PC JEWELLERS it is a company wich is engaged in jewellery business ,this company announced buy back @ premium of 54% of it\'s c.m.p and before two-days it withdraw the plan because it\'s bankers not given NOC to the company.so clearly it\'s a speculation going on in indian market ,this type of activity is to protect the market price of share from falling and giving exit opportunity to big player .

I believe when ever company announcing such offer you must check it\'s cash and bank balance and it\'s indebtedness to verify whether the company is having actual cash or it\'s makingbogus offer.

NOW LET\'S DISCUSS BONUS, SPLIT AND RAVERS STOCK SPLIT

bonus generally means capitalizing the free reserve of the company.

let\'s discuss example of another indian IT giant infosys wich announced 1:1 bonus like if you are having 1 equity share you will get another one.I usually prefer this type of company wich is having large reserve and capitalizing it\'s reserve for shareholders.however it may not have immediate effect like dividend , in the case of dividend or buy back shareholders are receiving actual cash but in bonus they are only receiving shares and market price of the share will also be adjusted in the ratio of bonus or spilt.

moreover if any company is announcing bonus stock split etc then company can not speculate based on this but in case of dividend or buy back they can.