1.Describe Linear Technologies payout policy.

Linear Technologies’ payout policy, unlike many other competitors in the Semiconductor Index, has a large portion in dividends. Linear has provided a steady dividend payout since 1992 in a gradually increasing rate in small amounts. Linear’s management believes that offering dividends appeals to potential investors, who not only focuses on the growth matters of the firm but also has interests in steady income, and attracts them to purchase shares of the company. They also thought that providing dividends gives a positive signal to the investors meaning “Linear is capable of being profitable and generating positive cash flows even in a recessionary environment such as 2002”. This idea can be supported by theories such as dividend signaling hypothesis. Numerous studies assert the fact that firms with more favorable inside information optimally pay higher dividends and receive appropriately higher prices for their stock.
In addition, Linear’s management is powering through stock repurchase in the recent fiscal years. There are two major reasons explaining this increasing amount of stock repurchase. According to Coghlan, Linear’s employee compensation is mostly based on stock options and profit sharing, and in order to counterbalance the exercise of stock options, Linear is buying back stock. The second major reason is because of lack of profitable investment opportunities. The market interest rate has been very low and also Linear has been managing the cash balance in a rather conservative manner. These are the reasons that the management board indicates, however more supporting reasons of increased amount of stock repurchase is hidden under the surface. First of all, stock repurchases are discretionary compared to dividends. Additionally, stock repurchase doesn’t affect the value of the shareholders.

3.If Linear were