This website uses cookies to ensure you have the best experience. Learn more

Dividend Policy Essay

2893 words - 12 pages

Airline Industry
The airline industry consists of scheduled and charters flights that transport passengers by planes.  Cargo and freight is not included.  The Canadian airline industry has fluctuated growth in the past few years, and it’s expected to grow moderately and stably in the next 5 years.  The industry generated $17.25 billion of revenue in 2013, which is about a growth of 6.2% compared to 2012.  60.1% of passengers are travelling domestically and the rest travels internationally.  It will increase in the next five years by 20.4%, according to the forecast, and reaching a value of $20.7 billion (Airlines in Canada).
Here is the conclusion of Porter’s 5 forces industry analysis, ...view middle of the document...

 The other division offers services such as transporting non-containerized products, bilateral transborder and international cargo shipments, as well as cargo management. WestJet is maintaining its operating strategy of providing low-cost travel all the time. With the vision to become one of the five largest airlines in the world by 2016, WestJet started to increase its market share by increasing its fleets and number of destinations.  
There are two main competitors of WestJet as it expanded its business across Canadian market and U.S. market. The most significant competitor of WestJet is Air Canada. As Canada’s longest-running airline, Air Canada has three operating divisions: guest, cargo and others.  The company changed its operating strategy to cost reduction and profitability improvement after suffering a huge loss in 2008. In order to expand operation and increase its business in new low-cost carrier segment, Air Canada launched Rouge in July 2013. Rouge’s appearance will definitely attract existing customers of WestJet and has a negative influence on WestJet’s market share.
The second competitor of WestJet is Air Transat, which is a subsidiary of Transat A.T. Inc. Transat A.T. Inc. is a leading integrated tourism Canadian company in the world. It’s vertically integrated and is composed of five business units (outgoing tour operators, incoming tour operators and destination services, retail distribution, air transportation, and hotels). Among those business units, Air Transat offers more than 60 destinations in over 30 countries. Transat’s current business strategy is to reduce cost and improve margin through more acquisition of more travel companies or tour operator across the world. Although it is different from WestJet’s strategy of offering lower-cost travel, Transat is trying to offer more flight destinations and holiday packages, which also increases competition in the market.
Off balance sheet assets such as leases of aircrafts and engines supports the operation of WestJet.  Buying engines and aircrafts can be very expensive for airlines.  In the case of leasing, WestJet is able to use the aircrafts and engine without breaking the required covenants; the leasing cost is also tax deductible.   Air Canada and Transat uses off balance sheet to fulfill its covenants.
On balance sheet assets such as derivative financial assets is used to hedge the risk of foreign exchange on aircraft leases, fuels and interest rate risk.  Both WestJet, similar to Transat and Air Canada, list its derivative assets on its balance sheets.    Deposit under assets also supports the company’s operation.  Certain deposits are paid to engine and aircraft lessors when leasing contract is generated, primary use as a collateral, and will be returned when the contract expired.  Other deposits includes fuel and airport operation deposits. WestJet, similar to Air Canada and Transat, has listed deposits under their assets.  These deposits and agreements to the...

Other Essays Like Dividend Policy

Fpl Group Essay

803 words - 4 pages profitable investment opportunities and therefore its need for internal funds varys considerably over time 2) Equity offerings can be expensive and perhaps should be avoided 3) Most managers are confirmed with a firms leverage which will tend to be higher if dividends are paid than if they are not. 4) Residual dividend payout policy – dividends should be paid only if the firm has excess cash after all these concerns are taken into

Company Analysis

3629 words - 15 pages . Furthermore, offering a dividend would give Linear access to a new set of investors with varying goals. Linear set its quarterly dividend at a low introductory price of $0.05 per share which accounted for $8.3 million, or 15% of FY 1994 earnings. The company’s strategy was to be very conservative with its cash management so that a situation did not arise where it was unable to pay dividends. However, Linear’s payout policy was far greater than


1404 words - 6 pages basic earnings per share was hugely negative in one year, earnings before goodwill amortisation and exceptional items were positive in all five years. Five year dividend policy In the five year period from 2000 to 2004, dividend increases in the first three years and decreases only in the last year. In the first three years from 2001 to 2003, dividend increase each year by 15%. Only in the last year, dividend decreased by 44 %. The constant 15

Linear Tech

1577 words - 7 pages the dividend policy. This was already announced by Blaine Rollins, Portfolio Manager of Janus Capital, when he made it clear that he was comfortable with the current dividend approach and ideally liked the strong cash flows and repurchases of stock. Finally a look at the expected rate of return compared with the required rate of return for Linear Technology tells us that by offering an increase in the dividend payout, the expected rate of

Final Project Business

775 words - 4 pages Final Project MT 217-03 Reflect and describe which key concepts and topics in this course have made you a stronger candidate to enter the business world. The main key topics in the course which made me a stronger candidate to enter the business world with great confidence are capital structure, leverage effect, dividend policy formulation as well as dividend calculation. Knowledge of the Capital structure concept helped me to understand

Gainesboro Case Study

1535 words - 7 pages need to invest. Hence this is the worst option for Gainesboro thus far. What happens to Gainesboro’s financing need and unused debt capacity? How might Gainesboro’s various providers of capital (shareholders and creditors), react if Gainesboro declared a dividend in 2005? 3.4 The residual payout A residual payout policy is the best option to enable Gainesboro to reach their 15% annual growth target. A residual payout implies Gainesboro

Empirical Corporate Finance

3439 words - 14 pages caused this abnormal price development from August 2008 to November 2008. FPL Case Expected Reaction of Stock Price The Modigliani/Miller Theorem The first theorem of Modigliani/Miller states that neither dividend policy nor financing decisions have an impact on share prices in perfect capital markets. A companies’ total value is determined by its basic earning power and business risk. In other words company value depends only on the income

Gainesboro Dividend Case Study

2938 words - 12 pages Capacity (0%, 20%, 40% and residual payout) 13 Appendix 2: Residual Payout Calculations 15 Appendix 3: Sensitivity Analysis for Optimal Payout Ratio 16 Appendix 3.1 Debt/ Equity Ratio of 13% and 18% Annual Sales Growth 17 Abstract This paper reviews current literature to explore the financial effects of payout policy on signalling and clientele effects, as well as the financial implications of dividend and share repurchase decisions

The Financial Analysis for Davide Jones

1517 words - 7 pages growth in FY06 (at lower end of target range) Confident of delivering 5%-10% PAT growth in FY07 & FY08 23 AIFRS AIFRS changes are non-cash related Underlying business not impacted – excellent performance continues Maintain NPAT guidance of 5%-10% growth (on an AIFRS adjusted FY05 base) in FY06, FY07 & FY08 Increased Dividend Payout Policy of 85% of PAT (under AIFRS) with effect from FY06 Capital Management on track − cash and franking

Math of Finance

5507 words - 23 pages shares. Generally, preferred shares has both favourable and unfavourable features in comparison with common shares. Favourable features include its dividend preference over common shares and an unfavourable feature is that it typically is non-voting. Preferred shares usually are par value shares and usually specifies a dividend rate such as “6% preferred shares.” 6. Par value is a nominal per share amount established for the common shares and

Corporate Finance Basics

3586 words - 15 pages may or may not require approval by shareholders. 1. Dividend Policy The decision to pay out earnings versus retaining and reinvesting them. Dividend policy issues include: a. High or low dividend payout? b. Stable or irregular dividends? c. How frequently to pay dividends? d. Announce the dividend policy? 2. Theories of Dividend Policy 3 theories of dividend policy: 1. Dividend irrelevance: Investors don’t care about dividend payout. 2

Related Papers

Dividend Policy Essay

2459 words - 10 pages 1. Introduction This paper will examine the relationship between the dividend policy and stock price volatility based on the previous studies. Dividend policy is referred as a direction to the dividend paid out. In practice, we can through three aspects to show how the dividend policy is important. Firstly, in term of the clientele effect, the transaction cost and tax of investor position can exert an influence on whether dividend policy gains

Divedends Essay

1402 words - 6 pages decisions depends on the dividends policy that issued for corporations. 3- What is Dividends Policy: The term ‘dividend policy’ refers to “the practice that management follows in making dividend payout decisions or, which means, the size and pattern of cash distributions over time to shareholders”.. In other words, Once a company makes a profit, management must decide on what to do with those profits. They could continue to retain the

Dividend Payout Essay

893 words - 4 pages doesn’t have to pay dividends after, let alone 100% of its earnings. 5.0 Reference Allen, Franklin, 2002, Payout Policy, Press of University of Pennsylvania; Hough, Jack, 2012, Where to Find the Next Crop of Dividend-Paying Stars, WSJ, April 2012 Liu, Peng, 2008, Real Earnings Management and Dividend Payout Signals: A Study for U.S. Real Estate Investment Trusts, (CAAA) 2008 Annual Conference Paper Russell, Rob, 2012, 1 Reason Not To Buy Dividend-Paying Stocks, Smarter Investor, July 2012; Schwartz, Ted, 2013, Dividends: Take the Money and Run;

Divident Policy Of Bata Essay

4364 words - 18 pages Chapter 1 Chapter 1 INTRODUCTION ------------------------------------------------- Origin: Corporate Finance (MBA 507) is a course to be completed as a degree requirement for Masters of Business Administration (MBA). During the course taken our honorable teacher asked to prepare a report on dividend policy. We have chosen “Bata Shoe (Bangladesh) Ltd.” to study to prepare this report. The report is designed to gather practical