Flatbussh Shipyard Case - 1360 Words

Case study 2: Flatbush Shipyards, Inc. Case Summary: Flatbush Shipyards, Inc. has just received a substantial increase in backlog orders from the U.S. Navy. In relation, some issues arise concerning an alteration of the current dividend rate. The current EPS of the company is now $14-$15. Historically, the dividend payout ratio mounts to an average 50%. So, the company expects payout the payout in 1959 to be $7/share. In the previous year the dividend rate was cut from $1.3 to $1.2 per share. But after the new deal, the CEO proposed a hike in the quarterly payout to $1.6 per share from the $1.2 given at present. The CEO even suggested the dividend rate to be propped up to $1.80 in 1960. One thing to mind is that the†¦show more content†¦Another objective that Mr David has is to change the structure of capital holders, considering that 47% of the shares are owned by brokers and security dealers, by transforming the company’s share into a less speculative one. In order to maintain the dividend stable across years, he had the idea of creating a funded dividend reserve to compensate stockholders in bad years, which we consider a good idea to achieve his aim, although we can ask if instead of giving the money to stockholders in bad years, why don’t they give the money now and let the investors decide for themselves. Of course, this is dependent on the investor’s wishes and naturally on the investments opportunities. Question Number Two The first objection is related to the fact that this is a totally new approach concerning dividend policy, and nobody can predict what is going to happen. We consider that this may have positive effects on share prices, especially taking in consideration that it will stabilise the market price of the company. Another objection refers to the fact of creating a funded dividend reserve. The point is why have so much free cash flows if there aren’t any investments opportunities and eventually the money will go to the stockholders anyway. This can be a very good remark that must be taken in consideration. The third objection (â€Å"leading the country along the disastrous road to socialism†) seems to be totally out of context, that can’t be taken seriously