The company initiated its dividend in 1993 with a relatively conservative payout ratio of 15%, based on a quarterly dividend of $0.05/share/quarter ($0.00625 split adjusted as per Exhibit 3). As of 3Q2003, the dividend is also $0.05/share/quarter, adjusted for stock splits, which translates into a payout ratio of . The payout ratio is currently 27.5% on an as adjusted basis. The payout ratio reached 10% in 2001, when EPS was at a record high. On an adjusted basis, Linear Technologies has consistently increased its dividend each year. Since 2000, the dividend increases have been $0.01/share/quarter each year. By comparison, the payout ratios for Intel and Maxim (based on announced dividend initiation) are 17.1% and 9.9%, respectively.
Linear Technologies has a current cash balance of over $1.5 bn. The company has no long term debt. (Exhibit 11)
Linear Technologies Financing Needs:
Continuous R&D expense Was ~10% of revenue prior 2000, and has averaged ~15% of revenue in 2002 and 2003
Maintenance CapEx It appears as if the company invested $200mm, the size of a new 10-year fab facility, only 2 years ago. The life of the fab facilities are generally estimated at 10 years therefore it is reasonable to assume that Linear does not have significant CapEx outlay in the forthcoming years.
Increased working capital This is likely variable based on revenues
Linear’s Linear has a flexible business model and is able to bring manage costs fairly well up andin line with fluctuations down with revenues fairly wellin revenues. The company developed operates on the basis of a high-variable cost, low fixed cost operating model.
Suppose that there were no tax considerations. If Linear were to pay out its entire cash balance ($1.5 billion) as a special dividend, what would be the effect on value? On the share price? On...