For decades, dividends have been an ever-important topic regarding firms’ policies.Dividends play significant roles for firms as well as for investors. They help managersto inform and attract investors by acting as signal that the firm is expected to do well, but also act as a source of income for many investors.This paper examines the dividend policy of Information Technology (IT) andConsumer Staples (CS) firms listed on the S&P500 over the period 2006-2011. Inaddition, it seeks to identify and contrast the features that determine firms’ dividend policies in each sector. The reasoning behind choosing these two specific sectors isdue to their contrasting natures. The IT sector is almost double the size of the CSsector, making up 20.26% and 11.06% of the S&P 500, respectively. The IT sector isalso much newer and growing more rapidly than its counterpart. Both of these sectorsconsist of many global names, including, Microsoft, Intel, IBM, Hewlett Packard,Wal-Mart, Procter and Gamble, Coca Cola and Kraft.A quantitative approach is used, namely, two measures of dividend policy (dividend payout and dividend yield) and a range of firm specific variables including totalassets, free cash flows, debt, growth rates and profitability. An analysis is conductedof the firm specific variables to determine if they play a significant role in dividend policy. These variables are sourced from
Thomson One Banker.
A comparison of themeans of each variable is then conducted using SPSS.The results show that US firms are relatively generous dividend payers, despite therecent financial crisis, and that they place a relatively high importance on dividend policy. Firms in the CS sector appear to consistently pay higher dividends than firmsin the IT sector. In addition, IT firms, which are in the growth stage of their life-cycleand are more likely to have greater investment opportunities, frequently reinvest a lotof their profits back into their businesses as well as build up their cash holdings. For this reason, they are clearly more conservative with their dividend payouts.Furthermore, it is found that the CS firms, which are larger and more mature, are morehighly leveraged but still have higher payout ratios and yields, revealing that theyhave a higher capacity to service their debt.Page | 2