Reasons for adopting particular dividend policies & Case with Apple

Managers and shareholders often got differentiation of dividend policies which link to shareholser value and long-term strategy. As far as i am concern, the reasons of managers adopting particular dividend policies is varieries.

First of all, i think, how long the company being set is much more related to the dividend policies. If the company was new, it is important for the company to save more earings for expansion and invest into projects. If the company is stable, which may need rise the dividends for strength shareholder confidence.
Secondly, faced the dynamic global business enviornment such as financial crisis and creit crush, the company may have to adopted the dividend policy in order to survival.
Ultimately, the operating condition of the company is the heart of factors. Once the make the wrong choice about dividend policy, it might decrease share price or not sustain for developing long-term strategy.

Take Apple for example, as the Financial Time reports at 25th April 2013, that its $45b cash return has delayed by three years. The direct result of tight dividend policy would influence share price, which be forecasted by analyst that the earnings per share of Apple would be $10.09.  Considering the reason of this phenomena is because the decreasing sales income of iPad and iPhone in the first season of 2013. Tim Cook, the CEO of Apple, has demonstrated that the under pressure from activist investors as iPhone growth slows, tries to assure shareholders and customers that Apple has lost none of its magic touch.

Apple always concentrate on technology innovation, which would be part of long-term strategy of future development. They are cope with new products and service updating such as iOS 6.1 and iPhone 5. However, Tim Cook said:“We’ve got some really great stuff coming in the fall and across all of 2014. The most important objective for Apple will always be creating innovative products and that is directly within our control. We will continue to focus on the long term and we continue to be very optimistic about the future.”

sources: http://www.nasdaq.com/symbol/aapl/revenue-eps

In order to ensure the reinvestment of technology innovation, Apple may need to cut its dividends return. If take the angle of Tim Cook, considering more about lond-term development or shareholder value would be the future orientation of Apple. The pervious CEO--Steve Jobs would consider more around technology innovation and products updation. However, IT especially smart phone market is full of competition, which samsung and Sony are update new products and updating service system for strength competitive advantages.Since the market capitalisation of Apple increasing significantly in recently years, more public attention is paid onto sustaibability and sharehoders wealth of this orgainsation.

As far as i am concerned, the competition of smart phone by now is globally. To survival and cope with new products would be better for the long-term development. However, to deliver such a information that Apple still full of strength and magic power for customers need to ensure the confidence of shareholders. New investors would also be considered the earning per share. Therefore, I think, despite the capital investment of technology innovation and service updating, to justify spending would be more important for Apple.

Choosing particular capital sructure

Modern capital structure theory  be defined as in perfect markets, capital structure should have no influence on the value of a firm. Therefore, choosing particular capital sructure become more and more important. Optimal capital structure are find balance between debt-to-equity range and lowest cost of capital. 

Lloyds which be reinforced as the UK's largest retail bank by the end of 2008, is now considering to selling part of its assets manager named Scottish Widows Investment Partnership for increase its capital. According to Financial Times, there are 142billion pounds of assets beneath management of Scottish Widows Investment Partnership. 

At the hardest time in financial market within UK, the Lloyds take the strategy to scale back the size of the bank and simplify the structure of business, is focusing on the  retail market. Meanwhile, Lloyds sold out a 20% stake in wealth manager St James's Place for earn money as its market price grow up. 

In the case of Lloyds TSB bank, there are particular strategy that the organization raise its capital. The organization is focus on investing in retail market. However, what is the factors influence managers choose particular capital structure?

My opinion is that there are three aspects.

Firstly, I think for all organisations, excluding debt and business risk is the basic risks. It is unirversity acknowledge that the higher business risk, lower optimal debt ratio which investors are tends to believe this company are able to be response with this capital structure in both good period and bad period.

Secondly, the tax exposure makes big differents for the companies as well as the financial flexibility. Because when the company in the good times, it is easy to raise capital, however, when it is bad times, the company may need to borrow funds, if there is too much funds, the investors would doubt the ability of the company whether it can pay back the funds or not.

Thirdly, the management and operation strategy of the company influence the capital 
structure significantly. Because if the company is achieving its expansion strategies, it may be much funds for raise money. For the situation, the earning per share would be higher because the funds are invest into projects for creating profits.