6431965 (1) - means that the company is not planning to...

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1. DIVIDEND PAYOUT AS VALUATION TECHNIQUE A company paying dividends are usually viewed as more favorable compared to a company that is not paying (or paying less) dividends. In fact, often times, some say that the higher the dividend distribution of the company the more favorable it becomes. Therefore, some may conclude to forecast/concentrate on dividends or the dividend payout of a company. Question: Assuming everything else is the same, is this simple concentration on the dividend payout of the company a good valuation technique? Take the FALSE approach with your answer.(min 120 words) Concentration on the dividend payout of the company alone is a not a good valuation technique. Dividends denote the share of the profits of the company. Of course, investors are happy to get rewarded for the money they invest. But, if the company’s dividend payout ratio is higher, it
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Unformatted text preview: means that the company is not planning to expand itself. The company only retains a small portion of its earnings which may denote a slow growing company or a non-expanding company. A company’s dividend payout ratio may be lower, but it may indicate that the company plans to expand itself and to grow at a higher rate. If the company grows at a higher rate, it is good for the investors ultimately, in the long-run. The investors can then attain higher capital gains on their investment. The company’s aim should be to maximize the wealth of the shareholders. Therefore, a good valuation technique should not only concentrate on dividend payouts, but to take into account the company’s cash flows and its forecast, performance and profitability, market share and future expansion potentials....
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This note was uploaded on 09/08/2011 for the course ACCOUNTING 101 taught by Professor Bayne during the Winter '10 term at Berkeley.

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