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Table of Contents
Introduction ..................................................................................................................................... 3
Linter Dividend Policy .................................................................................................................... 3
Ford Motors .................................................................................................................................... 4
Bayerische Motoren Werke AG (BMW ......................................................................................... 6
Conclusion ...................................................................................................................................... 8
Reference ........................................................................................................................................ 9
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Introduction
John Linter developed theory on dividend policy. Linter’s theory indicates that the
investors will prefer to receive certain amount of dividend now rather than allowing the amount
for reinvestment on some future investment whose returns are uncertain. In this paper, there is a
detailed discussion about the Linter dividend policy and real world investor reaction over the
dividends using Ford and Bayerische Motoren Werke AG.
Linter Dividend Policy
John Linter developed theory on dividend policy. Linter’s theory indicates that the
investors will prefer to receive certain amount of dividend now rather than allowing the amount
for reinvestment on some future investment whose returns are uncertain. Linter theory indicates
that the company set their long-term dividend targets based on their dividend to earnings ratio
(Lehmann and Mody, 2004). The net present values of all the projects that is available for the
company are determined and based on their net present value the dividend payout ratio is set.
Company makes estimation about their future earnings and set their dividend payout ratio. As the
dividend payout ratio of the company are set after the analysis of sustainable earnings.
Therefore, there will not be more changes in the dividend policy until otherwise there is
an evidence for the managers that there will be change in the sustainable earnings of the
company. Linter published his conclusions based on the analysis that is companies tend to have a
policy of fixed dividend percentage but in most of the cases, company follows with the fixed
dividend per share. The company’s management tends to focus on the year on year change in the
dividends instead of focusing on the changes in the absolute value. These are the motives for the
management of an organization to set long-term dividend policies and always focus on
increasing the amount of dividend that are paid by the company (Peleg, 2014). The Linter theory
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indicates that the dividends depend upon the cu
ent year earnings and the previous year
dividend.
Ford Motors
Below table provides a detailed information about the dividends per share, earnings per
share, growth in dividends, growth in earnings, dividend payout ratio, number of shares
outstanding and the share price of Ford Motors from 2013 to 2016.
2013 2014 2015 2016
Dividend per share $0.40 $0.50 $0.60 $0.60
Growth 25.00% 20.00% 0.00%
Earnings per share $2.94 $0.31 $1.84 $1.15
Growth -89.46% 493.55% -37.50%
Dividend payout ratio 13.61% 161.29% 32.61% 52.17%
Number of shares outstanding (in millions) 4,087.00 3,999.00 4,002.00 3,958.00
Share price $12.64 $13.52 $12.79 $11.78
Source: Morningstar, 2017 and Yahoo Finance, 2017.
From the table, it is clear that there is growth in the amount of dividends that is being
paid by Ford to their shareholders. The dividend growth rate was at 25% during 2014 and 20%
during 2015. The company maintained a constant level of...