LINTNER PLC declared dividends in a predictable pattern. Its target dividend payout ratio averaged 55% of annual
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LINTNER PLC declared dividends in a predictable pattern. Its target dividend payout ratio averaged 55% of annual earnings. When earnings changed, however, the company usually changed its dividend only half way toward the level that the target payout ratio would imply. The last dividend was 10c per share, and the company has just announced after-tax annual earnings of 30c per share.
(a) What level of dividend per share would the market now expect?
(b) The company announces that total dividends for the year will be 10p per share.
How would the market react to this announcement? Why would it react in this way?
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