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What dividend policy should Southboro Corporation adopt in the long-term?
Date Submitted: 09/10/2006 01:55:28
Length: 3 pages (843 words)
Views: 144801
SOUTHBORO CORPORATION Issue:<Tab/> What dividend policy should Southboro Corporation adopt in the long-term? Background: Southboro is a publicly-traded Company with 51% owned by public. It is currently engaged in the sale of CAD/CAM equipment (45% of total revenues), presses and molds (40% of total revenues), miscellaneous machines (15%). The firm has just completed a restructuring of its operations in the face of declining sales and has suspended payment of dividends during the 1st …
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…benchmarking made, the price per share is highest at 20% payout ratio (based on 1989). This validates 2 points raised earlier. o<Tab/>a high payout ratio will require higher additional debt/increased leverage which may send distress costs. The Company may exceed their maximum tolerable debt level. o<Tab/>Low plowback -.At 40% payout dividends is restrictive to growth. Dividends that do not restrict growth would enhance market price
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