Assessing Dividend PolicyRevisit the company you chose for your Week 6 Final Project. Using the annual report and other sources such as a 10k or 10q’s, discuss the dividend policy of your company.Answer the following questions as part of your response:• How would you describe your chosen company’s dividend policy?• Why do you believe this company chose the dividend policy they have in place?• Do you agree or disagree that they have selected the best dividend policy for the company?• How might this dividend policy function in both perfect and imperfect capital markets?• Calculate the dividend rate over the past 5 years. Define why you believe that it has or has not changed over the last 5 years.Support your position with evidence from the text or external sources.Your post should be 200-250 words in length.Guided Response: Review several of your classmate’s postings. Respond to at least two classmates by commenting on whether you agree or disagree with your classmates’ reasoning for the selection of dividend policy. Provide other reasons why that particular company may have chosen that dividend policy.——————————————————1. Rebekah.Shell’s Dividend PolicyShell’s dividend policy can be described as stable. Shell’s dividend policy is set up to increase dividends with cash flow and fundamental revenue (Shell, 2019). In 2018, the company reached the highest profits in years, surpassing predictions (Meredith, 2019). Shell also offer their shareholders a share buyback program, which was started in mid-summer of 2018 (Shell, 2019). The company has noted the goal to buy back $25 billion by the close of 2020. However, the plan notes that the company may not reach this goal due to debt reduction needs and changes in oil prices (Shell, 2019). Shareholders can reinvest dividends. Buyback of stock can assist the organization so that the cost of the transaction is dispersed and would have a minor impact on the shareholders’ wealth (Byrd, Hickman, & McPherson, 2013). The constant dividend makes Shell a safe investment. Shell is using its dividend policy to ensure stability in the company, as well as value to the shareholder to build on the trust by reinvesting.Support Choice in Dividend PolicyShell has used its dividend policy to impart trust from its shareholders. The trust has supported the reinvest into the company. The company also sees how they want to buy back some of the stocks to protect their interests. For example, Guess used this same buyback strategy to increase the value of stocks by adding to the demand (Byrd et al., 2013). I agree with their policy as it benefits the shareholders as well as the company. Shell has used shareholder trust as well as repurchase plans to ensure the constant value in the market.Perfect and Imperfect Capital MarketsDividends have different impacts on shareholders if the capital market is perfect or imperfect. If the market is perfect, then the shareholders are unaffected (Byrd et al., 2013). In comparison, imperfect markets can see variation depending on the type of investor. For instance, young investors will likely prefer lower dividend investments as they have time for them to grow. If the investors are using the stocks as income, they would seek out stocks with higher dividends (Byrd et al., 2013). In imperfect markets, the company will try to find ways to save on transaction costs and will focus on investing in any positive Net Present Value projects prior to dividends, known as residual dividend policy (Byrd et al., 2013). In imperfect capital markets, dividends are impacted.Dividend Rate and ReasoningIn alignment with the dividend policy, Shell has had constant dividends to its shareholders of 0.47 quarterly, or 1.88 annually from 2014-2018 (Shell, 2019). However, in 2013 the company had only 0.45 quarterly or 1.80 annually (Shell, 2019). The growth rate from 2013-2014 is calculated as 4.4%; whereas, the company did not show a growth rate from 2014-2018. I believe the constant dividends are due to the company using the repurchase of stocks and reinvestment into the company so that the money left for dividends once the policy is in practice is constant instead of variable. I believe the lack of change for the last few years is by design and aligns with their dividend policy.References:Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial finance. Retrieved from https://content.ashford.edu/Meredith S. (2019, January 31). Shell’s full-year profit surges to four-year high, beats expectations, CNBC.Retrieved from https://www.cnbc.com/2019/01/31/shell-earnings-full-year-profits-soar-to-four-year-high.htmlShell Global (2019). Dividend Policies, Shell Global. Retrieved from https://www.shell.com/investors/dividend-information/dividend-policy.html———————————————————————-2. Simone.IBERIABANK pays dividends based on its earnings, financial condition, cash requirements and general business conditions (IBERIABANK Corporation, 2018). They have paid a quarterly dividend to common shareholders for the past 95 consecutive quarters and have not missed or suspended any dividend since their IPO and initial dividend declaration in 1995 (IBERIABANK Corporation, 2018). Its goal is to pay a high rate of dividends to their shareholder.IBERIABANK chooses this policy because they believe that they manage their capital in the best interest of their shareholders and want to keep those shareholders happy by maximizing their wealth.I agree that IBERIABANK has selected the best dividend policy for the company because they are hitting their financial goals. They are “producing high quality earnings, having steady balance sheet growth and increasing product and service offerings while maintaining an excellent credit quality” (IBERIABANK Corporation, 2018).Dividend policy does not matter to shareholders in perfect capital markets because a firm is equally valuable whether it pays all of its residual cash to shareholders or retains all of its cash flow” (Byrd, Hickman, & McPherson, 2013, s. 10.2). In perfect capital markets, a shareholder’s wealth remains the same (Byrd, Hickman, & McPherson, 2013). Imperfect capital markets introduce transaction costs, taxes and agency fees into the mix, which make investors who need steady income to favor higher paying dividends and investors who want to remain fully invested in stocks to prefer firms who pay low to no dividends (Byrd, 2013).The dividend rate is as follows:2014: .34 a quarter = 1.362015: .34 a quarter = 1.362016: .34 + .34 + .36 + .36 = 1.402017: .36 + .36 + .37 + .37 = 1.482018: .38 + .38 + .39 + .41 = 1.56The dividend rate has steadily increased over the years due to the increased growth and success of the bank.ReferencesByrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version]. Retrieved from https://content.ashford.edu/IBERIABANK Corporation. (2018). Form 10-K 2018. Retrieved from SEC EDGAR website http://www.sec.gov/edgar.shtml——————————————-Required ResourceTextByrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version]. Retrieved from https://content.ashford.edu/• Chapter 9: Capital Structure• Chapter 10: Dividend PolicyRecommended ResourcesArticlesMergent. (n.d.). Mergent Online Quick Tips. Mergent Online. Retrieved from Online Ashford Library.Mergent Database for Company and Industry Research.• To access go to the Ashford Library and select “Find Articles and More” in the top menu panel. Next, select “Databases A-Z” and go to section “M” for “Mergent”.Modigliani & Merton (1958). The Cost of Capital, Corporation Finance, and the Theory of Investment. American Economic Review, 261 – 297. Retrieved from ProQuest database.WebsiteMoneychimp (Links to an external site.). (http://www.moneychimp.com/articles/financials/fundamentals.htm)
