Alternative dividend policies Given the earnings per share over the period 2005-2012 shown in the following table, determine the annual dividend per share under each of the policies set forth in parts a through d.
|
Year
|
Earnings per share
|
|
2012
|
$1.40
|
|
2011
|
1.56
|
|
2010
|
1.20
|
|
2009
|
-0.85
|
|
2008
|
1.05
|
|
2007
|
0.60
|
|
2006
|
1.00
|
|
2005
|
0.44
|
a. Pay out 50% of earnings in all years with positive earnings.
b. Pay $0.50 per share and increase to $0.60 per share whenever earnings per share rise above $0.90 per share for two consecutive years.
c. Pay $0.50 per share except when earnings exceed $1.00 per share, in which case pay an extra dividend of 60% of earnings above $1.00 per share.
d. Combine the policies described in parts b and c. When the dividend is raised (in part b), raise the excess dividend base (in part c) from $1.00 to $1.10 per share.
e. Compare and contrast each of the dividend policies described in parts a through d.