Fellingham Ltd. has 20 million common shares in issue. No shares have been issued during the past

Question:

Fellingham Ltd. has 20 million common shares in issue. No shares have been issued during the past four years. The business's earnings and dividends as taken from the annual reports showed:

At the annual general meeting for 2007, the chairman had indicated that it was the intention to consis¬tently increase annual dividends by 9%, anticipating that, on average, this would maintain the spending power of shareholders and provide a modest growth in real income. As it turns out, subsequent average annual inflation rates, measured by the general index of prices, have been:
2008 ......................... 11%
2009 ......................... 10%
2010 ......................... 8%
The common shares are currently selling for $3.44, excluding the 2010 dividend.
Required:
Comment on the declared dividend policy of the business and its possible effects on both Fellingham Ltd. and its shareholders, illustrating your answer with the information provided.