Home Depot, Inc.’s income statements for 2016, 2017, and 2018 show basic earnings per share of $6.47, $7.33, and $9.78, respectively. Diluted earnings per share figures are slightly lower than these numbers, indicating the impact of potential capital stock activity that could reduce earnings per share for current stockholders. The company paid cash dividends of $2.76 per share in 2016, $3.56 per share in 2017, and $4.12 per share in 2018. These amounts are included in a Stockholders’ Equity note to the financial statements that is not included in Appendix A.
a. Why do you think Home Depot is paying out considerably less than its earnings per share to stockholders in the form of cash dividends?
b. If you were an investor in Home Depot’s stock, would you be unhappy because your dividends represented only 40-50 percent of the company’s net income?