Gainesboro
Summary of Facts
September of 2005 Ashley Swenson is faced with preparing a recommendation on the restructuring of the dividend payout policy for Gainesboro Machine Tools Corporation. In the past few years the company has experienced a decrease in sales due to increased competition. With the recent development of the Artificial Workforce, the company is looking at making a positive turnaround. With the soon to come global expansion and the forecasted growth in sales brought by new innovations of the Artificial Workforce, the direction of the dividend policy needs to be determined. When forming the recommendation something to be considered is the thought of rebranding the company to more accurately depict its move into the high tech CAD/CAM industry. Also, the current effects of Hurricane Katrina on the Oil and Gas refinement industry has caused some uncertainty in the near future sales of the Artificial Workforce product line to that industry.
Problem
First and foremost the dividend payout policy needs to be addressed. The major options to be considered are: a zero payout policy, a 40% dividend payout policy, or a residual payout policy. The company is also considering taking advantage of the recent stock price decline with a repurchase. Lastly, with the new innovations of the Artificial Workforce, the company is considering a rebrand to reposition themselves in the eyes of the public as a high tech CAD/CAM company.
Analysis
In a special letter to shareholders the directors declared their intention to continue their annual dividend, however there are three major options facing the company concerning dividend policy.
Zero-dividend payout:
A zero-dividend payout would suggest that the Gainesboro is pursuing a “growth” strategy, a more common approach for technology companies. This would be a significant departure from Gainesboros’ position as a value company that sees itself as a stalwart in the industry. Changing this public perception of the company comes with
September of 2005 Ashley Swenson is faced with preparing a recommendation on the restructuring of the dividend payout policy for Gainesboro Machine Tools Corporation. In the past few years the company has experienced a decrease in sales due to increased competition. With the recent development of the Artificial Workforce, the company is looking at making a positive turnaround. With the soon to come global expansion and the forecasted growth in sales brought by new innovations of the Artificial Workforce, the direction of the dividend policy needs to be determined. When forming the recommendation something to be considered is the thought of rebranding the company to more accurately depict its move into the high tech CAD/CAM industry. Also, the current effects of Hurricane Katrina on the Oil and Gas refinement industry has caused some uncertainty in the near future sales of the Artificial Workforce product line to that industry.
Problem
First and foremost the dividend payout policy needs to be addressed. The major options to be considered are: a zero payout policy, a 40% dividend payout policy, or a residual payout policy. The company is also considering taking advantage of the recent stock price decline with a repurchase. Lastly, with the new innovations of the Artificial Workforce, the company is considering a rebrand to reposition themselves in the eyes of the public as a high tech CAD/CAM company.
Analysis
In a special letter to shareholders the directors declared their intention to continue their annual dividend, however there are three major options facing the company concerning dividend policy.
Zero-dividend payout:
A zero-dividend payout would suggest that the Gainesboro is pursuing a “growth” strategy, a more common approach for technology companies. This would be a significant departure from Gainesboros’ position as a value company that sees itself as a stalwart in the industry. Changing this public perception of the company comes with