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Linear Technology Case Study

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What is Linear Technology Current Payout Policy?
Linear Technology (LT) is like many firms where it used a combination of dividend payments and share / stock repurchases to distribute cash to its shareholders. With a cash dividend, cash is paid directly to shareholders while, with a stock repurchase, a firm uses its cash to buy back its own shares from the market which in turn reduces the number of outstanding shares (Titman and Keown et al., 2011). LT wanted to be able to attract different dividend clienteles of investors which have the both income goals and growth goals (Baker and Wagonfeld, 2004).
As stated in the article provided, LT is a developer and manufacturer of analog semiconductors and in 1992 it initiated dividends (Baker and Wagonfeld, 2004). The firm’s Chief Financial Officer, Paul Coghlan, described this decision as being based on the fact that LT was very well positioned within the industry and that the firm had promising expectations for its business within its flourishing market (Baker and Wagonfeld, 2004). He also highlighted that LT had positive cash flows ever since its IPO and so by paying dividends to its shareholders they would send a stable and confident message of appeal to potential investors in a relatively risky market (Baker and Wagonfeld, 2004). The firm primarily set their quarterly dividend at a relatively low price of US$0.0625 per share and, with a Net Income of US$36.4 million in its 1993 Fiscal Year, only US$5.3 million was paid as dividends which only made up approximately 15% of those earnings (Baker and Wagonfeld, 2004). Coghlan described this strategy of starting at a low price as an effort to keep the dividend payout ratio stable and sustainable (Baker and Wagonfeld, 2004). In other words, the firm continued to pursue a stable dividend policy where there are no decreases in common stock cash dividends over time as it is

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