Pizza Inc. had earnings of $1.00, $1.25, and $4.00 per share and a dividend policy that resulted in annual dividends per share of $0.40, $0.50, and $1.60 for the past three years. The company anticipates maintaining the same dividend policy this year and also anticipates an increase in earnings to $6.00 per share this year. What dividend do you expect Pizza Inc. to pay in the next year?
Based on the given information, it can be observed that Pizza Inc. has a dividend payout ratio of 40%, meaning that they distribute 40% of their earnings as dividends.
In the past three years, the dividends paid per share were $0.40, $0.50, and $1.60, respectively. Since the earnings per share in those three years were $1.00, $1.25, and $4.00, the implied dividend payout ratios can be calculated as follows:
Year 1: Dividend Payout Ratio = Dividend per share / Earnings per share = $0.40 / $1.00 = 40%
Year 2: Dividend Payout Ratio = Dividend per share / Earnings per share = $0.50 / $1.25 = 40%
Year 3: Dividend Payout Ratio = Dividend per share / Earnings per share = $1.60 / $4.00 = 40%
Since the company anticipates maintaining the same dividend policy this year and expects earnings per share of $6.00, we can assume that the dividend payout ratio will remain at 40%. Therefore, the expected dividend per share can be calculated as:
Expected Dividend per share = Dividend Payout Ratio * Expected Earnings per share = 40% * $6.00 = $2.40
Thus, Pizza Inc. is expected to pay a dividend of $2.40 per share in the next year.