Evaluating the Dividend Yield Ratio
Cinergy is a utility company that provides gas and electric service in Ohio, Kentucky, and Indiana. The company’s dividend yield is 6.6 percent. Starbucks, a well-known retailer of coffee products, does not pay dividends, resulting in a dividend yield of 0.0 percent. Both companies are approximately the same size with market values of $5 billion.
Required:
1. Bused on this limited information, why do you think the dividend policies of the two companies are so different?
2. Will the two companies attract different types of investors? Explain.
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