CASE STUDY

1. Introduction:

The importance of dividend policy and the challenge of determining the

appropriate amount to distribute.

Contrasting theories on dividend policy from high payouts to low

payouts and the dividend irrelevance theory by Modigliani and Miller.

2. Framework for Dividend Policy:

The conflicting nature of dividend policy guidance in financial theory.

CLIENTEL

High Payouts: Preferred by investors for immediate returns, reduced

agency costs.

Low Payouts: Tax efficiency, reinvestment opportunities, and reduced

future payout obligations.

Dividend Smoothing: companies aim to maintain relatively stable and

predictable dividend payments over time, despite fluctuations in their
earnings or cash flow. The goal of dividend smoothing is to provide a
consistent return to shareholders, reducing uncertainty and fostering
investor confidence.

Signaling Effect: Dividend changes signal management's expectations

of future earnings.

Clientele Effect: Investors prefer companies with dividend policies that

match their needs.

Growth Opportunities: Influence a company's choice between paying

dividends and retaining earnings.

Berkshire
Aspect Microsoft Exxon Mobil Wynn Resorts
Hathaway

Historically Unusual and

Consistent
Dividend No dividend high dividend fluctuating
payer since
Policy payments growth and dividend
2003
payout ratios payments

CASE STUDY 1
 Increased
payouts, Maintained
significant cash Focused on dividends Suspended
Actions During
distributed via share despite dividends to
Pandemic
dividends and repurchases financial conserve cash
share challenges
repurchases

Continued
Announced a Continued
focus on Suspended
10% increase in dividends
strategic dividends due
Recent Activity quarterly despite
acquisitions to severe
dividends in reporting
and share financial impact
Sep 2020 losses
repurchases

Balance
between
Reinvestment Preserved
returning cash Conserve cash
and dividends to
to shareholders amidst financial
Philosophy acquisitions retain investor
and maintaining distress and
preferred over confidence and
financial uncertainty
dividends stability
flexibility for
growth

Balance of
Use excess Commitment to Prioritize
dividends and
cash for shareholder financial
share
Strategy acquisitions, returns through stability and
repurchases to
maintaining consistent liquidity over
maintain
strong reserves dividends dividends
growth

Strong,
Severe financial
allowing Strong, Financial strain
Financial impact led to
flexibility and significant cash but maintained
Health suspension of
increased reserves dividends
dividends
dividends

Long-term Preserve Manage

Growth and growth through investor immediate
Strategic
shareholder reinvestments confidence and financial needs
Priorities
returns and status as and ensure
acquisitions income source liquidity

Dividend Prioritize Focus on Commitment to Adapt dividend

Philosophy consistent and growth and dividends even policy based on
growing reinvestment at cost of financial
financial strain conditions

CASE STUDY 2
 dividend
payments

Suspended
Continued to Maintained dividends to
Pandemic No impact on
increase dividends to manage
Influence dividend policy
dividends signal stability financial
distress

Summary:
The case study highlights the diverse approaches to dividend policies by
Microsoft, Berkshire Hathaway, Exxon Mobil, and Wynn Resorts. It underscores
how financial stability, market conditions, tax considerations, signaling, and
investor preferences shape these decisions. The pandemic provided a unique
backdrop to examine the resilience and adaptability of each company's
dividend strategy.

CASE STUDY 3