Last year, CPK Inc. had earnings of $4.50 per share and paid a dividend of $0.70. In the current year, the company expects to earn $3.50 per share. The company has a 35% target payout ratio and plans to bring its dividend up to the target payout ratio over a 5-year period. Given the previous payout ratio was 16%, calculate the expected dividend for next year when CPK Inc. is expected to earn $2.50.作者: madaochenggong 时间: 2011-7-11 19:37
$0.5425
Expected div inc = Exp inc in earnings x target payout ratio x adjustment factor
For Current year
-1 x 0.35 x (1/5) = -0.07
So dividend in current year = 0.63
For next year
-1 x 0.35 x (1/4) = -0.0875
So dividend in next year = 0.5425作者: lucasg85 时间: 2011-7-11 19:37
0.56?
CP作者: ayodayo 时间: 2011-7-11 19:37
D0 = .7
Expected EPS Increase = -1
Target Ratio = .35
1/5 years = .2
-1 * .35 * .2 = (.07)
.7 - .07 = $0.63
Interesting twist - i believe my above formula works when income is increasing - when income is decreasing, would you reflect a reduction in the dividend?作者: firat 时间: 2011-7-11 19:37
smileygladhands Wrote:
-------------------------------------------------------
> D0 = .7
>
> Expected EPS Increase = -1
>
> Target Ratio = .35
>
> 1/5 years = .2
>
> -1 * .35 * .2 = (.07)
>
> .7 - .07 = $0.63
>
> Interesting twist - i believe my above formula
> works when income is increasing - when income is
> decreasing, would you reflect a reduction in the
> dividend?
I think the dividend will not change if earnings decrease, that is why this formula is so stupid.作者: yospaghetti 时间: 2011-7-11 19:37
I thought target payout ratio was based on paying a given percentage of earnings each year. If that's the case surely it's irrelevant if earnings fall or rise as the dividend will fall or rise with earnings.作者: mengxu 时间: 2011-7-11 19:37
The wording in this question makes my head spin.
Previous Dividend + [(Change in EPS)*(Target Payout Ratio)*(Adjustment Factor)}
Is it 0.49?作者: tikfed 时间: 2011-7-11 19:37
Hey Damil, could you post the answer?作者: bdavi77962 时间: 2011-7-11 19:37
target payout ratio is just, the ratio of earnings they will pay out.
so if they say we will pay out 50% of earnings in dividends the next 5 years, thats the payout regardless of earnings.
so if earngins are up, you will get more and if down, div will be less作者: smuggycfa 时间: 2011-7-11 19:37
If a Co. has a target payout ratio of 50% that is NOT necessarily the actual Payout ratio.
If earnings go down, the dividend stays the same - unless it is a decline that is not expected to reverse
If earnings go up then the change in divs = (change in earnings)*(target ratio)*(1/# of years)作者: Newhuman 时间: 2011-7-11 19:37
FinNinja Wrote:
-------------------------------------------------------
> If a Co. has a target payout ratio of 50% that is
> NOT necessarily the actual Payout ratio.
>
> If earnings go down, the dividend stays the same -
> unless it is a decline that is not expected to
> reverse
>
> If earnings go up then the change in divs =
> (change in earnings)*(target ratio)*(1/# of years)
+1.
And there you have your answer, guys.作者: Houjichasan 时间: 2011-7-11 19:37
