Analysis of Dividend Policy

Objective

Inputsneede

Output
 Analysis of Dividend Policy
1.Tocomparehowmuchafirmhasreturnedtoitsstockholderhistorically(upto10years)withho
2.Toprovideanassessmentofprojectquality(ROEcomparedtocostofequity)andstockpricepe
3.Toprovideforecastsofhowmuchcashthefirmwillhaveavailableforstockbuybacksinthefutu
Forhistoricalanalysis:
a.NetIncome
b.Depreciation,amortizationandothernoncashcharges
c.Capitalexpenditures:Pleaseincludeacquisitionsaspartofcapitalexpenditures
d.Noncashworkingcapitalchanges
Inenteringthesenumbers,pleasemakesurethatyougetthesignsright(checkthecommentboxon
e.Dividends:Onlycashdividendsshouldbeshownhere(ignorestockdividends)
f.StockBuybacks:Includethecashflowassociatedwithstockbuybacks.
Forprojectassessmentandstockpriceperformanceanalysis
a.Beta:Youshouldreallyuseanaveragebetaoverthehistoricalperiod,butgoaheadanduseyour
b.BookValueofEquity:Tocomputereturnonequity.
c.Returnonthestock:Thisisthetotalreturnyouwouldhavemadeasaninvestor:Itincludesprice
d.Riskfreerate:Theoneyeargovernmentsecurityrateatthestartofeachyear(usetheT.Billrate)
e.ReturnonStockMarket:Thisisthetotalreturnonthestockmarketeachyear
(Youcangetthelasttwofromtheworksheetthatispartofthisspreadsheetthatreportshistoricalda
Forforecasts
a.Expectedgrowthratesinnetincome,dividends,depreciation,capitalexpendituresandrevenues
b.Workingcapitalasapercentofrevenues
c.Debtasapercentofreinvestment,lookingforward.Asadefault,youcanuseyourhistoricalaver
HistoricalAnalysis
1.FCFEandCashReturnedeachyearforthehistoricalperiod
2.Returnsonequity,thestockandyourrequiredreturneachyearforthehistoricalperiod
3.Averagesofbothovertheentireperiod
Forecasts
1.ForecastedFCFEfornext5years
2.Forecasteddividendsfornext5years
3.Cashavailableeachyearforstockbuybacksfornext5years.
o10years)withhowmuchitcouldhavereturned.
andstockpriceperformanceovertheperiod.
uybacksinthefuture

ecommentboxoneachoftheseinputs)

headanduseyourcurrentbetaifyoudonothavethis.

r:Itincludespriceappreciation+dividendyieldeachyear
usetheT.Billrate)

eportshistoricaldataonboth)

uresandrevenues

yourhistoricalaverage.
Section 1: Inputs for estimating Dividends and FCFE
How many years of historical data do you have available?
Current debt to capital ratio =
Do you want to want to change this ratio to a target debt ratio?
If yes, enter the target debt ratio to use =

Enter the following data for the years for which you have data (starting with the most recent year of data and work
Year Net Income Depreciation & AmortizatioCapital Spending & operating investme
1 $6,136.00 $2,192.00 $2,796.00
2 $5,682.00 $1,987.00 $3,784.00
3 $4,807.00 $1,841.00 $3,559.00
4 $3,963.00 $1,713.00 $2,110.00
5 $3,307.00 $1,631.00 $1,753.00
0 $4,427.00 $1,582.00 $1,586.00
0 $4,687.00 $1,491.00 $1,566.00
0 $3,374.00 $1,437.00 $1,319.00
0 $2,533.00 $1,339.00 $1,823.00
0 $2,345.00 $1,210.00 $1,427.00

Enter the dollar dividends paid and equity repurchases for each year of historical data (staring with most recent yea
Year Dividends (aggregate)Equity Repurchases (in $)
1 $1,324.00 $4,087.00
2 $1,076.00 $3,015.00
3 $756.00 $4,993.00
4 $653.00 $2,669.00
5 $648.00 $648.00
0 $664.00 $4,453.00
0 $637.00 $6,923.00
0 $519.00 $6,898.00
0 $490.00 $2,420.00
0 $430.00 $335.00

Section 2: Assessing Investment Quality and Stock Performance

The following section of the dividend policy analysis looks at the quality of your firm's investments and the risk-adju
you have a measure of excess returns (ROIC- Cost of capital) or a Jensen's alpha computed for your stock, you can u
The last set of inputs to this analysis relate to project choice and performance:
Enter the beta for the equity of this firm: 0.90

Enter the following data relating to performance (starting with most recent year): (Make sure that you update the r
Year BV: Equity Annual return on stock T.Bill rate
1 $380,078.00 35.33% 0.07%
2 $330,056.00 10.65% 0.05%
3 $194,181.00 -5.15% 0.03%
4 $84,200.00 16.22% 0.13%
5 $63,437.00 31.17% 0.14%
0 $91,658.00 38.30% 1.59%
0 $79,717.00 -3.45% 4.64%
0 $63,054.00 10.27% 4.68%
0 $44,602.00 -11.55% 3.01%
0 $37,019.00 7.60% 1.23%

Section 3: Inputs for forecasting future dividends and FCFE

Use these inputs if you want to make projection of FCFE for the future
Expected growth in Revenues over next 5 years =
Expected growth in Net Income over next 5 years =
Expected growth in capital expenditures in next 5 years =
Expected growth in depreciation in next 5 years =
Enter non-cash working capital as a percent of revenues
Enter revenues from most recent year =
Enter net income from most recent year or normalized value =
Enter capital expenditures from most recent year or normalized value =
Enter depreciation in most recent year =
Enter dividends paid in the most recent year =

Expected growth in dividends 5%

 5 (number of years)
11.58%
No
40.00%
Use less years, if you do not have the data.
t year of data and working backwards).
Chg in Non-Cash W Net Debt Issued
($133.00) $1,881.00
$940.00 $4,246.00
$950.00 $2,743.00
$308.00 $1,190.00
($109.00) ($235.00)
$485.00 $1,005.00
$45.00 $4,990.00
($136.00) $2,891.00
$270.00 $1,076.00
$51.00 $276.00

ng with most recent year): (Equity repurchases are in the statement of cash flows)
ments and the risk-adjusted, market-adjusted performance of your stock over the period. If
for your stock, you can use those measures instead of the ones computed here.

re that you update the riskfree rate and return on the market from the attached worksheet to reflect the time period for your da
Return on market
32.15% Note: I have the numbers for the US in the Historical stock & t.bill worksheet.
15.83% Please match up the annual data for the years for your company.
2.07% If you are in foreign market and don't
14.82% have these numbers, leave them at the US levels.
25.94%
-36.55%
5.48%
15.61%
4.83%
10.74%

5.00%
5.00%
5.00%
5.00%
6.00%
$42,278
$6,136
$2,796
$2,192
$1,324
reflect the time period for your data)

bill worksheet.
 DividendPolicy 26

AnalysisofPastDividends
1 2 3 4 5 0

NetIncome $6,136.00 $5,682.00 $4,807.00 $3,963.00 $3,307.00

(Cap.ExpDepr) $604.00 $1,797.00 $1,718.00 $397.00 $122.00

WorkingCapital ($133.00) $940.00 $950.00 $308.00 ($109.00)

FreeCFtoEquity(predebt) $5,665.00 $2,945.00 $2,139.00 $3,258.00 $3,294.00 $0.00

+NetDebtIssued $1,881.00 $4,246.00 $2,743.00 $1,190.00 ($235.00)

=FreeCFtoEquity(actualdebt) $7,546.00 $7,191.00 $4,882.00 $4,448.00 $3,059.00

FreeCFtoEquity(targetdebtratio $5,719.54 $3,261.93 $2,447.94 $3,339.63 $3,295.51 $0.00

Dividends $1,324.00 $1,076.00 $756.00 $653.00 $648.00

+EquityRepurchases $4,087.00 $3,015.00 $4,993.00 $2,669.00 $648.00 $0.00

=CashtoStockholders $5,411.00 $4,091.00 $5,749.00 $3,322.00 $1,296.00

DividendRatios
PayoutRatio 21.58% 18.94% 15.73% 16.48% 19.59%

CashPaidas%ofFCFE 71.71% 56.89% 117.76% 74.69% 42.37%

PerformanceRatios

1.AccountingMeasure
ROE 1.61% 1.72% 2.48% 4.71% 5.21%

Requiredrateofreturn 28.98% 14.27% 1.86% 13.37% 23.38%

ROECostofEquity 27.36% 12.54% 0.61% 8.66% 18.17%

Page 26
 DividendPolicy 27

2.StockPerformanceMeasure
Returnsonstock 35.33% 10.65% 5.15% 16.22% 31.17%

Requiredrateofreturn 28.98% 14.27% 1.86% 13.37% 23.38%

Jensen'salpha 6.35% 3.62% 7.01% 2.85% 7.79%

Index 1 1 1 1 1 0

Aggregate Average
NetIncome $23,895.00 $4,779.00
Dividends $4,457.00 $891.40
DividendPayoutRatio 18.65% 18.46%
StockBuybacks $15,412.00 $3,082.40
Dividends+Buybacks $19,869.00 $3,973.80
CashPayoutRatio 83.15%
FreeCFtoEquity(predebt) $17,301.00 $3,460.20
FreeCFtoEquity(actualdebt) $27,126.00 $5,425.20
FreeCFtoEquity(targetdebtratio $18,064.54 $3,612.91
Cashpayoutas%ofpredebtFCFE 114.84%
Cashpayoutas%ofactualFCFE 73.25%
Cashpayoutas%oftargetFCFE 109.99%

ROE 3.02%

ReturnonStock 17.64%

RequiredReturn 16.37%

ROERequiredreturn 13.36%

ActualRequiredReturn 1.27%

Page 27
 DividendPolicy 28

0 0 0 0 Aggregate

$23,895.00

$4,638.00

$1,956.00

$0.00 $0.00 $0.00 $0.00 $17,301.00

$9,825.00

$27,126.00

$0.00 $0.00 $0.00 $0.00 $18,064.54

$4,457.00

$0.00 $0.00 $0.00 $0.00 $15,412.00

$19,869.00

Page 28
 DividendPolicy 29

0 0 0 0

Page 29
 FORECASTEDFCFEANDDIVIDENDS
DebtRatiousedinforecastingFCFE= 11.58%

ForecastedFCFE
1 2 3 4
NetIncome $6,443 $6,765 $7,103 $7,458
(CapExDeprec'n)(1DR) $561 $589 $618 $649
ChangeinWorkingCapital(1DR) $112 $118 $124 $130
FCFE $5,770 $6,058 $6,361 $6,679
ExpectedDividends $1,390 $1,460 $1,533 $1,609
Cashavailableforstockbuybacks $4,380 $4,599 $4,829 $5,070

Revenues $44,392 $46,611 $48,942 $51,389

NoncashWC $127 $133 $140 $147
EANDDIVIDENDS

5
$7,831
$682
$136
$7,013
$1,690
$5,324

$53,959
$154
Year S&P 500 3-month T.Bill10-year T. Bond
### 43.81% 3.08% 0.84%
### -8.30% 3.16% 4.20%
### ### 4.55% 4.54%
### ### 2.31% -2.56%
### -8.64% 1.07% 8.79%
### 49.98% 0.96% 1.86%
### -1.19% 0.32% 7.96%
### 46.74% 0.18% 4.47%
### 31.94% 0.17% 5.02%
### ### 0.30% 1.38%
### 29.28% 0.08% 4.21%
### -1.10% 0.04% 4.41%
### ### 0.03% 5.40%
### ### 0.08% -2.02%
### 19.17% 0.34% 2.29%
### 25.06% 0.38% 2.49%
### 19.03% 0.38% 2.58%
### 35.82% 0.38% 3.80%
### -8.43% 0.38% 3.13%
### 5.20% 0.57% 0.92%
### 5.70% 1.02% 1.95%
### 18.30% 1.10% 4.66%
### 30.81% 1.17% 0.43%
### 23.68% 1.48% -0.30%
### 18.15% 1.67% 2.27%
### -1.21% 1.89% 4.14%
### 52.56% 0.96% 3.29%
### 32.60% 1.66% -1.34%
### 7.44% 2.56% -2.26%
### ### 3.23% 6.80%
### 43.72% 1.78% -2.10%
### 12.06% 3.26% -2.65%
### 0.34% 3.05% 11.64%
### 26.64% 2.27% 2.06%
### -8.81% 2.78% 5.69%
### 22.61% 3.11% 1.68%
### 16.42% 3.51% 3.73%
### 12.40% 3.90% 0.72%
### -9.97% 4.84% 2.91%
### 23.80% 4.33% -1.58%
### 10.81% 5.26% 3.27%
### -8.24% 6.56% -5.01%
### 3.56% 6.69% 16.75%
### 14.22% 4.54% 9.79%
### 18.76% 3.95% 2.82%
### ### 6.73% 3.66%
### ### 7.78% 1.99%
### 37.00% 5.99% 3.61%
### 23.83% 4.97% 15.98%
### -6.98% 5.13% 1.29%
### 6.51% 6.93% -0.78%
### 18.52% 9.94% 0.67%
### 31.74% 11.22% -2.99%
### -4.70% 14.30% 8.20%
### 20.42% 11.01% 32.81%
### 22.34% 8.45% 3.20%
### 6.15% 9.61% 13.73%
### 31.24% 7.49% 25.71%
### 18.49% 6.04% 24.28%
### 5.81% 5.72% -4.96%
### 16.54% 6.45% 8.22%
### 31.48% 8.11% 17.69%
### -3.06% 7.55% 6.24%
### 30.23% 5.61% 15.00%
### 7.49% 3.41% 9.36%
### 9.97% 2.98% 14.21%
### 1.33% 3.99% -8.04%
### 37.20% 5.52% 23.48%
### 22.68% 5.02% 1.43%
### 33.10% 5.05% 9.94%
### 28.34% 4.73% 14.92%
### 20.89% 4.51% -8.25%
### -9.03% 5.76% 16.66%
### ### 3.67% 5.57%
### ### 1.66% 15.12%
### 28.36% 1.03% 0.38%
### 10.74% 1.23% 4.49%
### 4.83% 3.01% 2.87%
### 15.61% 4.68% 1.96%
### 5.48% 4.64% 10.21%
### ### 1.59% 20.10%
### 25.94% 0.14% -11.12%
### 14.82% 0.13% 8.46%
### 2.07% 0.03% 16.04%
### 15.83% 0.05% 2.97%
### 32.15% 0.07% -9.10%
 Stock price Dividends Returns
2009 32.75
2010 27.21 0.4 -15.69%
2011 33.34 0.6 24.73%
2012 30.16 0.75 -7.29%
Yes
No