36 2001 148 2002 170 2003 176 2004 176 2005 196 the

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Unformatted text preview: 6 2001 $1.48 2002 $1.70 2003 $1.76 2004 $1.76 2005 $1.96 The firm is following a constant dividend policy with increases as the company grows. Note that the total amount committed to common dividends has increased each year, but it’s the dividend per share figure that counts. Given the increasing number of shares outstanding each year, the directors have been sure that DPS has remained constant or increased slightly on an annual basis. b. In Figure 2, we see that all of Montgomery’s competitors are either following the same policy that Montgomery is, or they are striving to increase the dividend every year. Dollar General held to a $.20 dividend in 2004 even though EPS decreased over 75%! In 2003 Dollar General actually increased the dividend by over 17% in spite of a 14% decrease in EPS. Clearly, dividend stability and growth is perceived as important in the retailing industry. Even Wal-Mart, a growing company which might be expected to emphasize capital growth over dividends, follows the general trend. (It is interesting to note that Montgomery generally has the highest average payout ratio in the industry. That’s to be expected of an old firm that has been paying and increasing dividends for many year...
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