Company A had $30 million in earnings last year. $10 million were used to buyback stocks and $7 million were distributed as dividends (this was the payout policy until now). Next year's forecast for earnings is $31,5 million; 30% will be used to buyback stock and 15% to pay dividends (this new policy will remain forever, with dividends being paid after share repurchase).
Assuming that last distribution occurred yesterday and new payout policy was publicized today, what are the expected dividends per share next year and the year after that? Assume that cost of capital is 10% and that, today, Company A has $20 million shares outstanding.
a) Expected dividend PER SHARE next year
b) Expected dividend PER SHARE the year after next year
(please keep in mind that dividends are paid after share repurchase, but I don’t think that they are also calculated after the share repurchase. If you have a reason for calculating it like that, please explain it.)
