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HULT INTERNATIONAL BUSINESS SCHOOL MFIN : Corporate Finance Professor: Herb Meiberger Case Solution: Dividend Policy at Linear Technology Introduction: Submitted by: Ashmita Srivastava Student ID: 86177 Linear Technology was founded in 1981 by Robert Swanson and is currently headquartered in Milpitas, California. Its primary focus is on designing, manufacturing and marketing integrated circuits used in cellular phones, digital cameras etc. It went public in 1986 on NASDAQ. The major forms of employee compensation for the company are profit sharing and employee stock option plans. Trends in Dividends: Linear Technology announced its first dividend on October 13th, 1992 @ $0.05 per share. The dividend was set low very thoughtfully because the company did not want to get in trouble in the long term by cutting dividends and a low payout ratio resulting in low investors’ confidence. Reasons for declaring dividends: • Linear Technology was very well positioned in the industry. • Positive cash flows • To gain Investors’ confidence • Access to new investors Major issues with declaring DividendsThere are a lot of controversies attached to declaring a dividend especially by a high tech company expecting good growth• The general phenomenon is that declaring dividends sends a signal to the market that the growth rate of the company is expected to slow down in future. • Tech companies compensate dividends by offering Stock options to their employees and hence use excess cash to repurchase shares to compensate the dilution caused when employees exercise the stock options. • Declaring dividend increases the no. of shares outstanding lowering the earnings per share. • Dividends are taxed twice at corporate level and at investor level, and hence repurchase is better. • If the company declares an increase in dividend in 4th quarter of April 2003, its payout ratio will be

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