Strategic Corporate Finance: Applications in Valuation and Capital Structure

DIVIDENDS ARE BACK

Dividends are back in fashion. This dividend renaissance is due to the culmination of several contributing factors, including capital market conditions, the growth of governance, and changes to accounting and taxes. And Microsoft alone has had a profound impact on global dividend policy. Though its case would seem unique—with profound levels of cash, cash flow, and a seemingly unassailable market position—boardrooms around the world and across all industries benchmark themselves to this company. The adoption or increase of dividends by admired corporations, no matter how different their circumstances, has forced the dividend discussion into Board of Directors agendas where it might otherwise never have surfaced.

Capital Markets

With interest rates still low by historic standards, many investors are looking for dividend income. Generally, poor equity returns have added momentum to this trend because of a general perception that dividends provide a safe haven in turbulent markets. The tremendous growth of the income trusts market in Canada, international development of the real estate investment trust (REIT) market, resurgence in master limited partnerships (MLPs) in the United States, and the perceived success of extreme dividend policy adopters in the United States has added broad momentum to dividend discussions. Several high-profile corporations initiated dividends, including Microsoft, Federal Express, and Qualcomm. Each of these companies cited reduced capital ...