Home Depot, Inc.'s income statements for 2003, 2004, and 2005 show basic earnings per share of $1.88, $2.27, and $2.73. 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 $.26, $.325, and $.40 per share in 2003, 2004, and 2005, respectively.
a. Why do you think Home Depot is paying out only about 14 percent to 15 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?
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