Dividend Policy at Linear Technology
Of the 16 companies on the SOX index, six paid dividends and Linear Technology is one of them started at the second quarter in 1993 which is 5.3 million in total. However, in the case, according to Coghlan, “The quarterly dividend was initially set at $0.05 per share. This amounted to $8.3 million, or 15% of FY 1994 earnings.” And their most recent dividend in 2002(cause in the exhibit2, there’s only threes quarter’s data in 2003, so that’s why I choose 2002 as the last year), the dividend was $0.17 per share amounted to 54 million total. Through out the decade, the company’s dividend generally increased and so did share repurchase except 1997 and 2000 which is 11.6 and 0. Their cash flow almost connected positively with their dividend except year 1999 and 2002. Because during these two years, company spent large amount of money repurchase their stock and left few cash. Linear bought back their stock when they believed the price of the stock was undervalued. One thing for sure for the Linear, they got excess cash. Based on the balance sheet of 2003, positive cash flow could faster the development of the company but they also need to suffer the extra tax. For example, in 2003, the company got 1565.2 million of cash sitting on the balance sheet. And today, Chase provides the one year regular saving rate with 0.01%. Thus, the extra tax would be: 15652000000*0.01%*38.6%=60,416.72. And also, the company failed to involve the benefits of interest tax shield of debt financing. The company conducted a 100% stock dividend which is also called 2:1 stock split. And to solve the extra money problem, Linear could return some of the cash to the stockholders through special dividend or share repurchase. If Linear paid out all its cash as a special dividend, then, To resolve this issue, Linear could return some of this cash to its shareholders via either a special dividend or a share repurchase. If Linear paid out all its cash, then the...
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