Linear Technology REVISED
Linear Technology
Linear Technology is a corporation that designs, manufactures, and markets integrated circuits and has also been called "one of the tech industry's most profitable companies” by Forbes magazine in 2010. This report will examine the company’s dividend policy and our group recommendation for Linear Technology moving forward.
Linear Technology (LT) does not have any debt in the company. Based on M&M proposition this means that LT can increase its debt to maximize the value of the firm. They have also done a lot of share repurchases over the years, this means that although they are giving money back to equity holders, they are paying out less money in dividends every year. They also need to do this because their employees have stock options and they have to repurchase shares so they do not dilute the stock.
Currently, there are agency problems between management and shareholders because there is not a large stock option compensation for management, and there is no debt in the company. The management team is not focused on the same thing as shareholders in regards to risk.
LT has the highest dividend payout ratio (dividend/net income) amongst its competitors and currently distributes its dividends using a target payout ratio. The target payout ratio is when a firm pays out stated dollar amount based on a percentage of its earnings that year. Linear Technology currently pays a $0.05 dividend per share, which accounts for 15 percent of their total earnings. Based on FY 2002 the dividend per share is still $0.05; however, it accounts for 27.3 percent of earnings (54/197.6=27.3) THIS MAY CHANGE THE FOLLOWING The reason why the payout is relatively low is because the company wants to sustain this ratio over time, which will help prevent investors from hammering the firm in case the firm has to reduce their dividend payments. Despite their earnings dropping significantly in 2002, the company believes earnings will shoot back up in the
Linear Technology is a corporation that designs, manufactures, and markets integrated circuits and has also been called "one of the tech industry's most profitable companies” by Forbes magazine in 2010. This report will examine the company’s dividend policy and our group recommendation for Linear Technology moving forward.
Linear Technology (LT) does not have any debt in the company. Based on M&M proposition this means that LT can increase its debt to maximize the value of the firm. They have also done a lot of share repurchases over the years, this means that although they are giving money back to equity holders, they are paying out less money in dividends every year. They also need to do this because their employees have stock options and they have to repurchase shares so they do not dilute the stock.
Currently, there are agency problems between management and shareholders because there is not a large stock option compensation for management, and there is no debt in the company. The management team is not focused on the same thing as shareholders in regards to risk.
LT has the highest dividend payout ratio (dividend/net income) amongst its competitors and currently distributes its dividends using a target payout ratio. The target payout ratio is when a firm pays out stated dollar amount based on a percentage of its earnings that year. Linear Technology currently pays a $0.05 dividend per share, which accounts for 15 percent of their total earnings. Based on FY 2002 the dividend per share is still $0.05; however, it accounts for 27.3 percent of earnings (54/197.6=27.3) THIS MAY CHANGE THE FOLLOWING The reason why the payout is relatively low is because the company wants to sustain this ratio over time, which will help prevent investors from hammering the firm in case the firm has to reduce their dividend payments. Despite their earnings dropping significantly in 2002, the company believes earnings will shoot back up in the