EPS and Dividends  UsingHome Depot, Inc., Financial StatementsHome Depot, Inc.’s income s...

 EPS and Dividends  UsingHome Depot, Inc., Financial Statements

Home Depot, Inc.’s income statements for 2007, 2008, and 2009 show basic earnings per share of $2.38, $1.34, and $1.58, respectively. Diluted earnings per share figures are slightly lower than these numbers, indicating the impact of potential capital stock activity that could reduce earnings per share for current stockholders.

The company paid cash dividends of $0.90 per share in each of 2007,2008, and 2009.

a.       Why do you thinkHome Depot is paying out only about 38 percent to 67 percent of its net income to stockholders in the form of cash dividends?

b.       If you were an investor in Home Depot’s stock, would you be unhappy because your dividends represented such a small percentage of the company’s net income?