Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
we have no plans to do either. We don't think it's our job to manage our shareholders. It's our job as the management team to manage the company, to manage it through when the stock price is going up and to manage it when the stock price is going down. Steven Jobs (Hillis, Apple Plans no Dividend or buyback)
Dividends are real money. That's the hallmark of a blue chip stock. If a company doesn't pay a dividend, it's a speculation. Geraldine Weiss (Sullivan, Dividend Stocks Pay Off)
AGENDA
Gainesboro Their dilemma Payout policy Dividends Relevant theories Repurchases Signaling Payout policy in the 21st century Recommendation Forecasts and supporting evidence Suggested Readings
Applied Business Finance UNC Charlotte MBAD 6154
/Gainesboro_and_their_dilemma
GAINESBORO
Conventional industry: Machine tools manufacturing Historically strong earnings and regular dividends 25% of revenue New industry: CAD/CAM software industry Expensive restructuring Enormous growth potential, domestic and international
/Gainesboro_and_their_dilemma /Income_statements
GAINESBORO MACHINE TOOLS CORP. Consolidated Income Statements (in thousands of dollars, except per-share data)
Shares Outstanding
18,600,000
Projected 2005
Research & development Selling, general, & administrative Restructuring costs Operating profit (loss)
Other income (expense) Income (loss) before taxes Income taxes (benefit)
($61,322)
$12,993
($140,784)
$18,018
($3.25) $0.77
$0.69 $0.25
($7.57) $0.25
$0.98 $0.39
/Gainesboro_and_their_dilemma
DILEMMA
Two expensive realignments $61.3 million loss in 2002 $140 million loss in 2004 Still paid $.25 / share dividend Share price down 24% from one year ago Avg$29.15 in 2004, currently
/Payout_policy
PAYOUT POLICY
How can a company increase its value through its choice of distribution policy, defined as the level of distribution, the form of distribution, and the stability of distributions? Optimal distribution policy
/Payout_policy/Dividends_and_dividend_theory
/Payout_policy/Dividends_and_dividend_theory
/Payout_policy/Dividends_and_dividend_theory
/Payout_policy/Dividends_and_dividend_theory
/Payout_policy/Stock_repurchases
STOCK REPURCHASES
Buybacks via open market or tender transaction Boosts EPS Adjusts capital structure Flexibility / Timing effects Signals confidence in future earnings
/Payout_policy/Signaling
SIGNALING
Information implicitly revealed Market uses and consumes information content Emperical studies show Potential consequences
/Payout_policy/_in_the_21st_century
/Payout_policy/Recommendation/Alternatives
THE ALTERNATIVES
Alternative options Various dividend payout ratios (exhibit 8a) 40% Residual dividends (18%) Revenue-mix adjusted dividend (~10%) 0%
/Payout_policy/Recommendation
RECOMMENDATION
Zero-dividend high-growth stock with residual repurchases New industry offers considerable growth opportunities Prior income-seeking clientele have divested
/Payout_policy/Recommendation/Optimal
Exhibit 4 - Revised GAINESBORO MACHINE TOOLS CORP. Stockholder Comparative Data, 1994 and 2004 (thousands of shares)
1994 Shares Founders' families Employees and families Institutional investors Growth-oriented Value-oriented Individual investors Long-term; retirement Short-term; trading-oriented Other; unknown Total 6,803 919 735 18,385 37% 5% 4% 100% 2,390 1,471 13% 8% 2,390 3,677 Percentage 13% 20% Shares
/Payout_policy/Recommendation
RECOMMENDATION
Zero-dividend high-growth stock with residual repurchases New industry offers considerable growth opportunities Prior income-seeking clientele have divested Industry peers comparison
Annual growth rate of cash flow (%) Next 3-5 Sales ($mm) Last 5 years years Gainesboro Machine Tools Corp. CAD/CAM companies (software and hardware) Autodesk, Inc. Ansys, Inc. Cadence Design Intergraph Corp. Mentor Graphics Moldflow Corp. Parametric Technology Corp. Synopsys, Inc. Electrical-industrial equipment manufacturers Cooper Industries, Inc. Emerson Electric Company Hubbell Inc. Thomas & Betts Corp. Machine tool manufacturers Actuant Corp. Lincoln Eletric Holdings, Inc. Milacron, Inc. Snap-On Inc. 504 (1.5) 15.0 Current payout ratio (%) 0.0 Current Insider dividend Debt/ equity owner- ship P/E ratio yield (%) (%)1 (%) (x) 0.0 28.0 30.0 nmf
/Payout_policy/Recommendation
RECOMMENDATION
Zero-dividend high-growth stock with residual repurchases New industry offers considerable growth opportunities Prior income-seeking clientele have divested Industry peers comparison Repurchases: Flexibility and signaling effects Pursue re-branding initiatives
Applied Business Finance UNC Charlotte MBAD 6154
CLASS COMMENTARY