AlHarthi Corporation is a fast-growing Internet access provider that initially went public in early 2002. Its revenue growth and profitability have steadily risen since the firms inception in late 1998. Because of its rapid growth in revenue and profits, Alharthi s common shareholders have been content to let the firm reinvest earnings(retained earnings) as part of its plan to expand capacity to meet the growing demand for its services. However, the firms CEO, Mr. Affendi believes that its shares are becoming less attractive to investors. Mr. Affendi has had discussion with his CFO, Mr. Ehsan, who believes that the firms must pay cash dividends. He argues that many investors value regular dividends and that by beginning to pay them, AlHarthi would increase the demand and therefore the price of its share. Mr. Affendi realized that if the board approved his recommendation, it would have to establish a dividend policy. Mr. Ehsan had prepare a summary of the firms annual EPS (Earning Pershare = Net Income/number of shares Outstanding). YEAR EPS 2008 $3.70 2007 $4.10 2006 $3.90 2005 $3.30 2004 $2.20 2003 $0.83 2002 $0.55 Taking into account the present economic condition, Mr. Ehsan indicated that he expects EPS to remain within 10% (plus or minus) of the most recent (2008) value during the next three years. After much of the discussion, both the CEO and CFO have agreed that they would recommend to the board one the following;

1. Constant payout dividend policy 2. Regular dividend policy 3. Low regular plus extra or special dividend policy

Analyze each of the three dividend policies in light of Alharthi financial position Which dividend policy would you recommend? Justify your recommendation.