Chapter 16, Problem 1PS

Dividend payments* In 2017, Entergy paid a regular quarterly dividend of $.89 per share.

1. a. Match each of the following dates.

(AI) Friday, October 27	(BI) Record date
(A2) Tuesday, November 7	(B2) Payment date
(A3) Wednesday, November 8	(B3) Ex-dividend date
(A4) Thursday, November 9	(B4) Last with-dividend date
(A5) Friday, December 1	(B5) Declaration date

1. b. On one of these dates, the stock price fell by about $.89. Which date? Why?
2. c. Entergy’s stock price in November 2017 was about $86. What was the dividend yield?
3. d. Entergy’s forecasted earnings per share for 2017 were about $6.90. What was the payout ratio?
4. e. Suppose that Entergy paid a 10% stock dividend. What would happen to the stock price?

Summary Introduction

To determine: The appropriate events in respective dates.

Explanation of Solution

Following are the appropriates matched with respective events:

Date	Event
Friday, October 27	Declaration date
Tuesday, November 7	Last with-dividend date
Wednesday, November 8	Ex-dividend date
Thursday, November 9	Record date
Friday, December 1	Payment date

Summary Introduction

To determine: The date at which the stock price is fell by $0.89 and the reason.

Explanation of Solution

The date is on November 8^th and it was the ex-dividend date, the fall in price due to the buyers of the stock on the ex-dividend date are not included in the company’s books prior to the record date and therefore they are not entitled to get the dividend and the price is fall by approximately the dividend amount.

Summary Introduction

To determine: The dividend yield of the company E.

Dividend yield is the ratio between a firm’s yearly dividend to its share price and it is denoted as percentage.

Explanation of Solution

$\begin{array}{c}\text{Dividend yield = }\frac{\text{Annual dividend}}{\text{Stock price}}\\ =\frac{\left(\$0.89\times 4\right)}{\$86}\\ =\frac{\$3.56}{\$86}\\ =0.0414\text{or 4}\text{.14\%}\text{.}\end{array}$

Therefore, the dividend yield of company E is 4.14%.

Summary Introduction

To determine: The payout ratio of the company E.

Payout ratio is the ratio which shows the amount of dividend that a firm gives out to its shareholders from its current earnings.

Explanation of Solution

$\begin{array}{c}\text{Payout ratio = }\frac{\text{Annual dividend}}{\text{Annual earnings}}\\ =\frac{\left(\$0.89\times 4\right)}{\$6.90}\\ =\frac{\$3.56}{\$6.90}\\ =0.516\text{or 51}\text{.6\%}\text{.}\end{array}$

Therefore, the payout ratio of the company E is 51.16%.

Summary Introduction

To determine: The impact on stock price if the company E paid a 10% stock dividend.

Explanation of Solution

If the stock dividend is increased the number of shares outstanding without changing the market value of the firm, hence, the value per share will decline.

$\begin{array}{c}\text{Expected stock price = }\frac{\text{Current price}}{\left(1+\text{dividend payout ratio}\right)}\\ =\frac{\$86}{1.10}\\ =\$78.18\end{array}$