The following summary of the payout, dividend yield, and basic earnings per share ratios is available for a three-year period for Gildan Activewear Inc.:
__________________________2015 2014 2013
Payout ratio...............................32.7%..........15.5%..............13.6%
Dividend yield ..........................0.84%...........0.75%.............0.75%
Basic earnings per share (U.S.$)$1.01............$1.48..............$1.32
Instructions
(a) Using the information provided above, determine the dividends declared and paid per common share in each year (assume there were no preferred share dividends). Why do you think dividends declared and paid per common share changed each year? (Hint: You can determine dividends per share by using basic earnings per share and the payout ratio).
(b) Do you think most companies would reduce dividends declared on common shares when basic earnings per share is declining? Why or why not?
(c) Derive the company's market share price at the end of each of the three years shown above by using the common dividends per share calculated in part (a) above and the dividend yield provided. Why do you think that the company's dividend yield increased in 2015?
(d) If you were an investor looking for dividend income, would you be happy with Gildan's dividend policy? Explain.