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Payouts and Dividends

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Delta Corporation earned $2.50 per share during fiscal year 2008 and paid cash dividends of $1.00 per share. During the fiscal year that just ended on December 31, 2009, Delta earned $3.00 per share, and the firm's managers expect to earn this amount per share during fiscal years 2010 and 2011, as well.

a. What is Delta's payout ratio for fiscal year 2008?

b. If Delta's managers want to follow a constant nominal dividend policy, what dividend per share will they declare for fiscal year 2009?

c. if Delta's managers want to follow a constant payout ratio dividend policy, what dividend per share will they declare for fiscal year 2010?

d. If Delta's managers want to follow a partial-adjustment strategy, with a target payout ratio equal to FY 2008's, how could they change dividend payments during 2009, 2010, and 2011?

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This solution provides calculations in Excel for questions involving payouts and dividends.

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