Paper Topic:

financial management

Financial Management

1 . Introduction

This seeks to accomplish the following for Kingfisher plc whose stocks are quoted on the London Stock Exchange

To comment upon the company 's dividend policy (Van Horne , 1992 ) over the last few years

To calculate correlation coefficients between the share price performance and dividends over the same period

To briefly describe my individual role in completing the assignment and reflect on what I have learned from the exercise

2 . Analysis and Discussion

2 .1 Comment upon the company 's dividend policy over the last

few years

As per verification from company 's website Kingfisher ' dividend policy for the last few years is a regular cash dividend (Ross Westrerfield , Jordan (1996 ) declaration given to stockholders which allows also scrip dividend conversion until June 2005 . Under such option dividend conversions which were replaced in 2005 by a dividend reinvestment plan (DRIP , UK stockholders are essentially offered to reinvest their dividends . It 's an act of putting back money into the corporation allowing management to use further the funds for more and better business opportunities . For both the scrip dividend and the DRIP , retained earnings of the corporation are effectively capitalized The effect therefore of such policy is to increase corporate capitalization . This policy is also a matter of corporate strategy . A corporate strategy is a plan to attain a corporate objective . As to what is the corporate objective , such will usually include an economic and non-economic objective . In this particular assignment , the objective most probably refer to financial or economic objective . The financial objective is to maximize the stockholders wealth . As to how this will be accomplished is a function of the stock price maximization (Weston , Brigham , 1993 . Hence , our premise is that the higher the stock price the better for the corporation since higher stock means better value for the investment (Holmes , 1998 ) of the owners or stockholders To establish whether the strategy (Porter , 1980 ) of adopting a dividend policy therefore is to determine whether or not it increases the stock price of the corporation as reflected in the stock exchange . This issue will be addressed by answering the next question in the next question

As to why Kingfisher plc changed its policy from scrip dividend up until 2005 to DRIP at present , there is a need to know to know first that a scrip dividend is a scrip issue made in lieu of a cash dividend (Pietersz , 2006 . Under such terms , shareholders are given the option to choose whether to receive a cash dividend or shares (Pietersz , 2006 . After knowing what is a scrip dividend , how is it different from a DRIP then ? Pietersz (2006 ) that a scrip dividend is preferable for shareholders to a DRIP as it avoids dealing costs , and the number of shares received is known at the time the election to receive shares rather than cash is made . The same author then explained that in the case of a DRIP the number of shares bought will depend on the share...

8 pages

77.0 KB

Free sing-up