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Unformatted text preview: 6 2001
$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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- Spring '12
- Corporate Finance