Q - Corp previous, expected, next, company

dvilayphet

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.

madaochenggong

$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

lucasg85

0.56?

CP

ayodayo

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?

firat

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.

yospaghetti

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.

mengxu

The wording in this question makes my head spin.

Previous Dividend + [(Change in EPS)*(Target Payout Ratio)*(Adjustment Factor)}

Is it 0.49?

tikfed

Hey Damil, could you post the answer?

bdavi77962

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

smuggycfa

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)