While conducting the analysis of EMI group’s dividend policy, one factor that stood out to us was the clientele effect. The clientele effect shows us who holds most of our outstanding shares. High tax-bracket individuals would prefer zero-to-low dividend payout to save on taxes. Low tax-bracket individuals would prefer a low-to-medium dividend payout, which gives them additional income while helping them save on taxes. An investing corporation would prefer a higher dividend payout because if they own a significant amount of shares, say 1 million, the income stream from that dividend would provide the company with more monetary resources while benefitting from tax exemptions. So before setting a dividend policy for EMI group, we must first determine who holds that majority of our shares and how many shares they hold. We found that 83% of EMI’s investor base is occupied by groups or institutions that own 1,000,000 shares or more. All of the significant shareholders are large corporations, who not only prefer, but demand a high dividend yield or payout. Only 0.2% of EMI’s shareholders are individual investors who own 500 shares or less. The payment of an 8p per share dividend is a significant amount for those larger investors who own 1 million+ shares. While to the smaller investors, who own less than 500 shares, a dividend of 8p per share doesn’t seem like much. So, not paying the scheduled dividend would significantly affect those larger investors who were expecting to see a high additional income figure from the dividend payment. Therefore, these large investors would begin to unload the EMI stock from their portfolios, which would be reflected in the decline of EMI’s stock price.…
