Corp Financial Management - Milestone 2.docx - Danielle...

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Danielle Valentino Southern New Hampshire University Milestone 2 – Stock Valuation & Bond Issuance Stock Valuation – Shareholder Value The principle of shareholder wealth maximization encompasses the idea that a company’s main objective is to provide shareholders with the maximum return. Within financial management, this means increasing the price of common stock by analyzing the risk and timing associated with expected earnings per share. When done correctly, financial managers will maximize future dividends and capital gains available to shareholders (Lea, 2008). When looking at to the 2017 annual report for UPS, cash dividends per share increased consecutively from 2015 to 2017. From a shareholder wealth maximization perspective, this indicates financial stability. A company that is able to pay a steady increasing dividend to shareholders, sends the message that they are financially strong (Cliffcore, 2020). Dividend yield represents the amount of dividends a company pays shareholders relative to their market value per share (The Economic Times, 2021). A higher dividend yield represents a healthy investment, as the company offers payoff options in a volatile environment. As seen in the annual report for UPS, the dividend yield decreased consecutively from 2015 to 2017, despite the amount of cash dividends increasing. From a financial management perspective, this seems to be an indication of strategic management to increase market value. As they continue to offer shareholders an increased dividend, their stock price continues to increase, allowing for shareholder wealth maximation and reinvestment into the company. When looking to increase the dividend paid to UPS shareholders by $1.75 each of the three years, dividend yield increases by close to 1.5% each year. In terms of maximizing shareholder value, increasing the dividend by $1.75 would satisfy that goal. Shareholders would
find their investment in UPS more valuable as the higher dividend yield shows financial stability. The stock price remains consistent; however, the higher dividend yield would likely attract more investors.

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