Dividend Policy

at Linear
Technology
Group 18

1
 2 3/6/17

COMPANY BACKGROUND
The company that we are analyzing is linear technology
corporation
A semiconductor technology firm founded by Robert
Wwanson(CEO) in 1981
CFO is Paul Coghlan
Company has been providing dividend since 1992
Company had set it low in beginning as it didnt want to
lower its dividend as according to company:- people
love dividend but hate it when companies stop giving it
The company has been consistently paying dividend
since then
 3 3/6/17

Company background
Company has also been buying shares back for
employee stock options
Janus capital is the largest single shareholder of lltc
The company makes analog circuits which are
manufactured in fabrication facility known as analog
fab costing (~$200 million)
Analog fab can be used for 10 plus years without
becoming obsolete , research expenses ($102 million)
Linear was 7th largest company by market
capitalization in Philadelphia stock exchange
semiconductor index(sox)
 4 3/6/17

COMPANY BACKGROUND
Linears sales, gross profit and net income peaked
in FY 2001
Business slowed down considerably in FY2002 and
linear could only earn $198 million as compared to
$427 million previous year
lttc has a cash reserve of roughly $1.5 billion out
of which short term investments are made which
are only yielding a total $52 million which is just
3.4 % .
Some investors are asking Coghlan to give some
sort of special dividends
 5 3/6/17

Problem Statement
Shouldlinear technology increase its
dividend , keep it constant or decrease
it?
 6 3/6/17

GORDONS MODEL
According to Gordons model
= (1)
p= market price per share
eps= earning per share
r= firms rate of return
k=firms cost of capital or capitalisation
rate b=fraction of retained earnings
dividend= eps(1-b)
 7 3/6/17

GORDONS MODEL
When r>k growth firm we should lower /
stop paying dividend
When , r=k normal firm can pay or hold
the dividend it will not affect our price of
share
When , r<k declining firm should pay
higher dividend
 8 3/6/17

COMPANYS DATA
Dividend that company is paying per
share = $0.05
Stock repurchase of $66.5 million in q4
2002
Stock repurchase of $125 million in q1
2003
Stock repurchase of $1.5 million in q2
2003
 9 3/6/17

Recommendation
Linear technology should not increase dividend
because:
Effects of US-Iraq war not known
Biggest institutional investor Janus Capital happy
with the current structure
Company is earning good interest income
Need to buy back shares- employee stock options
offsetting
Investment in technology
High dividend is a sign of slowdown
Only 6/16 SOX companies paid dividends