11 Evaluation of dividend policy. Hiome plc has experienced a period of above average growth for its industry, but is now growing at the normal rate of about 10 per cent per year. The company’s directors are reviewing the current dividend policy. One director has suggested that, as the company no longer needs as much internally generated funds to finance new investment, a higher proportion of earnings should be paid out as dividends in order to benefit the company’s shareholders. Another director has read that two eminent economists, Miller and Modigliani, have stated that the pattern of dividend payouts is irrelevant, and therefore shareholders will experience no gain from a higher level of dividends.
Required:
Discuss whether or not an increase in dividends is likely to benefit the shareholders of Hiome plc.