Dividend Policy at Linear Technology

In: Business and Management

Submitted By kychoi082
Words 1380
Pages 6
Dear Board Members,

I feel great responsibility in sending this memorandum to you all, as my recommendation could and most probably would have an impact on our company’s future. It has indeed been a hard decision to make, but through careful analysis, I have reached the conclusion that it would be best to keep the dividend as it is now. Before I brief you on the specifics of my decision, I feel the need to provide basic information about our company that surrounds this issue. To be more specific, I am referring to the past decisions on our dividend policy and our financing needs. Even if you are already aware of the specifics, please bear with me as this has played a crucial role in my decision.
Our company has generally had two different payout policies: the dividend payout and the stock repurchase. Our company has first started paying out dividends in 1992, when we had good expectations regarding the analog circuits market. The initial price of dividend per share was $0.05, which accounted for only 15 per cent of the total earnings; since then, the payout ratio steadily increased, getting close to 25 per cent in 2003. In terms of stock repurchases, we have sporadically repurchased stocks between 1993 and 2001, in order to offset the exercise of employee stock options. We have since then repurchased stocks quarterly, but with no distinct pattern. Taking both elements into consideration, it can be said that our company’s payout policy has generally satisfied the shareholders by increasing the level of dividends quarterly and managing a large cash balance in a conservative way. Our focus, as you must know, on analog semiconductors has allowed us to greatly reduce financing needs. Investments on analog fabrication facilities cost significantly lower compared to those in digital fabrication facilities, and the analog fabrication facilities are even more…...

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