Question

Paragraph 6 I 1 1 2 Data Visualization 19-1 EPS and dividend payout You are considening investing in the common stock of Dream Cabinets Corporation (DCC), Nearing retirement, one of your investment objectives is the promise of consistent dividends and relatively low risk To aid in your analysis, you enlisted Excel to chart relevant data from the most recent five years from DCC's financial statements EARNINGS PER SHARE AND DIVIDENDS $6.00 70% 60% $5.00 50% $4.00 40% $3.00 30% $2.00 20% $1.00 10% 50.00 0% EPS DIvidends Payo Ro Payout Ratio

Answer 1

1. Regarding payment of dividends over the most recent five years

- It can be noted that the EPS over the last 5 years has grown substantially, especially in year 2 (vs year 1) and year 5. However, the dividend payout ratio has remained generally consistent despite fluctuation in EPS. As per plotting on graph, we can note that dividend per share remained around $1-$1.3 (approx). However, EPS more than doubled from $2 in year 1 to $5 in year 5. To conclude, it can be said that the dividend per share has been more or less constant while the payout ratio has declined

2. What seems to be the reason for the slight decline in the dividend payout ratio in year 5

- As mentioned above, the company has generally maintained a steady dividend per share. However, payout ratio has noted slight decline in year 5 which is attributed to substantial rise in EPS to $5 approx from $3.5 approx in year 4

3. Regarding dividends in foreseeable future

- It can be predicted that the company shall maintain a steady dividend amount in future years on the basis of their track record over last 5 years. In terms of a figure, the dividend per share shall be in range of >$1-$1.3