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Dividend Payout

Company Y's earnings have been predicted for the next 5 years and are listed below. There are 1 million shares outstanding, determine the yearly dividend per share to be paid if the following policies are enacted?

Question 1: constant dividend payout ratio of 40 percent
Question 2: stable dollar dividend targeted at 40 percent of the earnings over the 5 year period.
Question 3: Small regular dividend of $0.50 per share, plus a year-end extra when the profits in any year exceed $1,500,000. the year-end extra dividend will equal 50 percent of profits exceeding $1,500,000

Year profits after taxes

Year 1 1,500,000
Year 2 2,000,000
Year 3 1,750,000
Year 4 950,000
Year 5 2,500,000

What I need help with is the formula and run down of the process to figure out this problem, the explicit answer is not necessary

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Solution Preview

1. A constant dividend of 40% is being given. The total dividend will be 40% of the profit after taxes in a year. The dividend per share will be the dividend amount/1,000,000 the number of shares outstanding
Year PAT 40% DPS
1 1,500,000 600,000 0.60
2 2,000,000 800,000 0.80
3 1,750,000 ...

Solution Summary

The solution explains the calculation of dividend amount under different situations