Analysis of Dividend Policy

Objective

Inputs needed

Output

Analysis of Dividend Policy

1. To compare how much a firm has returned to its stockholder historically (up to 10 years) with ho
2. To provide an assessment of project quality (ROE compared to cost of equity) and stock price pe
3. To provide forecasts of how much cash the firm will have available for stock buybacks in the fut
For historical analysis:
a. Net Income
b. Depreciation, amortization and other non-cash charges
c. Capital expenditures: Please include acquisitions as part of capital expenditures
d. Non-cash working capital changes
In entering these numbers, please make sure that you get the signs right (check the comment box on
e. Dividends: Only cash dividends should be shown here (ignore stock dividends)
f. Stock Buybacks: Include the cash flow associated with stock buybacks.
For project assessment and stock price performance analysis
a. Beta: You should really use an average beta over the historical period, but go ahead and use your
b. Book Value of Equity: To compute return on equity.
c. Return on the stock: This is the total return you would have made as an investor: It includes price
d. Riskfree rate: The one-year government security rate at the start of each year (use the T.Bill rate)
e. Return on Stock Market: This is the total return on the stock market each year
(You can get the last two from the worksheet that is part of this spreadsheet that reports historical d
For forecasts
a. Expected growth rates in net income, dividends, depreciation, capital expenditures and revenues
b. Working capital as a percent of revenues
c. Debt as a percent of reinvestment, looking forward. As a default, you can use your historical ave
Historical Analysis
1. FCFE and Cash Returned each year for the historical period
2. Returns on equity, the stock and your required return each year for the historical period
3. Averages of both over the entire period
Forecasts
1. Forecasted FCFE for next 5 years
2. Forecasted dividends for next 5 years
3. Cash available each year for stock buybacks for next 5 years.

rically (up to 10 years) with how much it could have returned.

st of equity) and stock price performance over the period.
e for stock buybacks in the future

expenditures

ght (check the comment box on each of these inputs)

ck dividends)

iod, but go ahead and use your current beta if you do not have this.

as an investor: It includes price appreciation + dividend yield each year

f each year (use the T.Bill rate)
et each year
adsheet that reports historical data on both)

ital expenditures and revenues

you can use your historical average.

r the historical period

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 earliest year and ending with the mos
Year

Net Income

Depreciation & Amortization

Capital Spending & operating investments

$6,136.00

$2,192.00

$2,796.00

$5,682.00

$1,987.00

$3,784.00

$4,807.00

$1,841.00

$3,559.00

$3,963.00

$1,713.00

$2,110.00

$3,307.00

$1,631.00

$1,753.00

$4,427.00

$1,582.00

$1,586.00

$4,687.00

$1,491.00

$1,566.00

$3,374.00

$1,437.00

$1,319.00

$2,533.00

$1,339.00

$1,823.00

10

$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 earliest year): (E
Year

Dividends (aggregate)Equity Repurchases (in $)

$1,324.00

$4,087.00

$1,076.00

$3,015.00

$756.00

$4,993.00

$653.00

$2,669.00

$648.00

$648.00

$664.00

$4,453.00

$637.00

$6,923.00

$519.00

$6,898.00

$490.00

$2,420.00

10

$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 earliest year): (Make sure that you update the riskfr
Year

BV: Equity

Annual return on stock

T.Bill rate

$380,078.00

-15.69%

0.13%

$330,056.00

24.73%

0.03%

$194,181.00

-7.29%

0.05%

$84,200.00

$63,437.00

$91,658.00

$79,717.00

$63,054.00

$44,602.00

10

$37,019.00

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%

10

(number of years)

11.58%
No
40.00%
Use less years, if you do not have the data.
Chg in Non-Cash WC
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

cal data (staring with earliest year): (Equity repurchases are in the statement of cash flows)

r firm's investments and the risk-adjusted, market-adjusted performance of your stock over the period. If

ha computed for your stock, you can use those measures instead of the ones computed here.

(Make sure that you update the riskfree rate and return on the market from the attached worksheet to reflect the time period f
Return on market
14.82%

Note: I have the numbers for the US in the Historical stock & t.bill worksheet.

2.07%

Please match up the annual data for the years for your company.

15.83%

If you are in foreign market and don't

have these numbers, leave them at the US levels.

5.00%
5.00%
5.00%
5.00%
6.00%
$42,278
$4,807
$3,559
$1,841
$756

heet to reflect the time period for your data)

Dividend Policy

26

Analysis of Past Dividends

1

$6,136.00

$5,682.00

$4,807.00

$3,963.00

$3,307.00

$4,427.00

$4,687.00

- (Cap. Exp - Depr)

$604.00

$1,797.00

$1,718.00

$397.00

$122.00

$4.00

$75.00

- Working Capital

($133.00)

$940.00

$950.00

$308.00

($109.00)

$485.00

$45.00

Free CF to Equity (pre-debt)

$5,665.00

$2,945.00

$2,139.00

$3,258.00

$3,294.00

$3,938.00

$4,567.00

+ Net Debt Issued

$1,881.00

$4,246.00

$2,743.00

$1,190.00

($235.00)

$1,005.00

= Free CF to Equity (actual debt) $7,546.00

$7,191.00

$4,882.00

$4,448.00

$3,059.00

$4,943.00

$4,567.00

Free CF to Equity (target debt ratio)

$5,719.54

$3,261.93

$2,447.94

$3,339.63

$3,295.51

$3,994.62

$4,580.90

Dividends

$1,324.00

$1,076.00

$756.00

$653.00

$648.00

$664.00

$637.00

+ Equity Repurchases

$4,087.00

$3,015.00

$4,993.00

$2,669.00

$648.00

$4,453.00

$6,923.00

= Cash to Stockholders

$5,411.00

$4,091.00

$5,749.00

$3,322.00

$1,296.00

$5,117.00

$7,560.00

Payout Ratio

21.58%

18.94%

15.73%

16.48%

19.59%

15.00%

13.59%

Cash Paid as % of FCFE

71.71%

56.89%

117.76%

74.69%

42.37%

103.52%

165.54%

ROE

1.61%

1.72%

2.48%

4.71%

5.21%

4.83%

5.88%

Required rate of return

13.37%

1.86%

14.27%

ROE - Cost of Equity

-11.75%

-0.14%

-11.79%

4.71%

5.21%

4.83%

5.88%

Net Income

Dividend Ratios

Performance Ratios
1. Accounting Measure

2. Stock Performance Measure

Page 26

Dividend Policy
Returns on stock

-15.69%

24.73%

-7.29%

Required rate of return

13.37%

1.86%

14.27%

Jensen's alpha
Index

-29.06%
1

22.87%
1

-21.55%
1

Aggregate
Net Income
$41,261.00
Dividends
$7,197.00
Dividend Payout Ratio
17.44%
Stock Buybacks
$36,441.00
Dividends + Buybacks
$43,638.00
Cash Payout Ratio
105.76%
Free CF to Equity (pre-debt)
$33,290.00
Free CF to Equity (actual debt) $44,120.00
Free CF to Equity (target debt ratio)
$34,212.99
Cash payout as % of pre-debt FCFE131.08%
Cash payout as % of actual FCFE 98.91%
Cash payout as % of target FCFE 127.55%

ROE

3.02%

Return on Stock

0.18%

Required Return

2.95%

ROE - Required return

0.07%

Actual - Required Return

-2.77%

Average
$4,126.10
$719.70
17.40%
$3,644.10
$4,363.80
$3,329.00
$4,412.00
$3,421.30

Page 27

27

Dividend Policy

10

Aggregate

$3,374.00

$2,533.00

$2,345.00

$41,261.00

($118.00)

$484.00

$217.00

$5,300.00

($136.00)

$270.00

$51.00

$2,671.00

$3,628.00

$1,779.00

$2,077.00

$33,290.00
$10,830.00

$3,628.00

$1,779.00

$2,077.00

$44,120.00

$3,598.59

$1,866.31

$2,108.03

$34,212.99

$519.00

$490.00

$430.00

$7,197.00

$6,898.00

$2,420.00

$335.00

$36,441.00

$7,417.00

$2,910.00

$765.00

$43,638.00

15.38%

19.34%

18.34%

204.44%

163.58%

36.83%

5.35%

5.68%

6.33%

5.35%

5.68%

6.33%

Page 28

28

Dividend Policy

Page 29

29

FORECASTED FCFE AND DIVIDENDS

Debt Ratio used in forecasting FCFE =

11.58%

Net Income
- (Cap Ex - Deprec'n) (1 - DR)
- Change in Working Capital (1 - DR)
FCFE
Expected Dividends
Cash available for stock buybacks

Forecasted FCFE
1
2
$5,047
$5,300
$1,595
$1,675
$112
$118
$3,340
$3,507
$794
$833
$2,546
$2,674

3
$5,565
$1,759
$124
$3,683
$875
$2,807

4
$5,843
$1,846
$130
$3,867
$919
$2,948

5
$6,135
$1,939
$136
$4,060
$965
$3,095

Revenues
Non-cash WC

$44,392
$127

$48,942
$140

$51,389
$147

$53,959
$154

$46,611
$133

DIVIDENDS

YearS&P 5003-month T.Bill

10-year T. Bond
### #####
3.08%
0.84%
### -8.30%
3.16%
4.20%
### #####
4.55%
4.54%
### #####
2.31%
-2.56%
### -8.64%
1.07%
8.79%
### #####
0.96%
1.86%
### -1.19%
0.32%
7.96%
### #####
0.18%
4.47%
### #####
0.17%
5.02%
### #####
0.30%
1.38%
### #####
0.08%
4.21%
### -1.10%
0.04%
4.41%
### #####
0.03%
5.40%
### #####
0.08%
-2.02%
### #####
0.34%
2.29%
### #####
0.38%
2.49%
### #####
0.38%
2.58%
### #####
0.38%
3.80%
### -8.43%
0.38%
3.13%
### 5.20%
0.57%
0.92%
### 5.70%
1.02%
1.95%
### #####
1.10%
4.66%
### #####
1.17%
0.43%
### #####
1.48%
-0.30%
### #####
1.67%
2.27%
### -1.21%
1.89%
4.14%
### #####
0.96%
3.29%
### #####
1.66%
-1.34%
### 7.44%
2.56%
-2.26%
### #####
3.23%
6.80%
### #####
1.78%
-2.10%
### #####
3.26%
-2.65%
### 0.34%
3.05%
11.64%
### #####
2.27%
2.06%
### -8.81%
2.78%
5.69%
### #####
3.11%
1.68%
### #####
3.51%
3.73%
### #####
3.90%
0.72%
### -9.97%
4.84%
2.91%
### #####
4.33%
-1.58%

###
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###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###

#####
-8.24%
3.56%
#####
#####
#####
#####
#####
#####
-6.98%
6.51%
#####
#####
-4.70%
#####
#####
6.15%
#####
#####
5.81%
#####
#####
-3.06%
#####
7.49%
9.97%
1.33%
#####
#####
#####
#####
#####
-9.03%
#####
#####
#####
#####
4.83%
#####
5.48%
#####

5.26%
6.56%
6.69%
4.54%
3.95%
6.73%
7.78%
5.99%
4.97%
5.13%
6.93%
9.94%
11.22%
14.30%
11.01%
8.45%
9.61%
7.49%
6.04%
5.72%
6.45%
8.11%
7.55%
5.61%
3.41%
2.98%
3.99%
5.52%
5.02%
5.05%
4.73%
4.51%
5.76%
3.67%
1.66%
1.03%
1.23%
3.01%
4.68%
4.64%
1.59%

3.27%
-5.01%
16.75%
9.79%
2.82%
3.66%
1.99%
3.61%
15.98%
1.29%
-0.78%
0.67%
-2.99%
8.20%
32.81%
3.20%
13.73%
25.71%
24.28%
-4.96%
8.22%
17.69%
6.24%
15.00%
9.36%
14.21%
-8.04%
23.48%
1.43%
9.94%
14.92%
-8.25%
16.66%
5.57%
15.12%
0.38%
4.49%
2.87%
1.96%
10.21%
20.10%

###
###
###
###

#####
#####
2.07%
#####

0.14%
0.13%
0.03%
0.05%

-11.12%
8.46%
16.04%
2.97%

2012
Inventories
$18.00
Other assets
-$151.00
Accounts payable
-$608.00
Income taxes
-$242.00
Chg in WC (Cash flow effect)-$1,091.00

2011
-$518.00
-$199.00
-$189.00
-$367.00
$134.00
-$1,139.00

2010
-$686.00
-$127.00
$42.00
$649.00
-$144.00
-$266.00

Commercial Paper
$467.00
Borrowings
$3,779.00
Reductions of borrowings
-$3,822.00
Net Debt (Cash flow effect)
$424.00

$393.00
$2,350.00
-$1,096.00
$1,647.00

$1,190.00
$0.00
-$1,371.00
-$181.00

Receivables

-$108.00

2009
2010
2011
2012

Stock price Dividends

Returns
32.75
27.21
0.4
-15.69%
33.34
0.6
24.73%
30.16
0.75
-7.29%

Yes
No