Analysis of Dividend Policy

Objective

Inputs nee

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 futu
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 each of these inputs)
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 current beta if you do not have this.
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 appreciation + dividend yield each year
d. Short term Riskfree rate: The short term government security rate at the
start of each year (use the T.Bill rate from the worksheet)
e. Return on Stock Market: This is the total return on the stock market each
year. You can get the numbers from the historical stocks and T.Bills
worksheet.
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 average.
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.
ically (up to 10 years) with how much it could have returned.
t of equity) and stock price performance over the period.
e for stock buybacks in the future

expenditures

k dividends)

the historical period