Discuss the advantages and disadvantages of each of the four alternative dividend policies, considering each policy both in general and as i applies to bessemer steel products. Be sure to discuss the clientele effect and the signaling hypothesis in your evaluation.

1. Continue the present policy of paying out 60 percent of earnings

2. Lower the present payout to some percentage below 60 percent-for example, 20,30, or 40 percent-and then keep the payout ratio constant at this new figure.

3. Set a relatively low regular dividend, such as 50 cents per share and then supplement its periodically with an extra dividend whose size would depend on the availability of funds and the company's need for capital. The size of the regular dividend would have to be determined at the outset, but all subsequent dividend decisions could be deferred, on a quarter-by-quarter basis, and made on the basis of a knowledge of the company's cash flow position and prospects at the time of the dividend decision.

4. Establish a fixed dollar amount of dividends-for example, $1 per share per year, payable 25 cents per quarter-and then, as earnings grow, increase the dividend. Under this plan, the payout ratio would fluctuate somewhat as earnings rose or fell in response to business cycle fluctuations, but the dividend would never be cut in a dire emergency. If this policy were adopted, the question of the size of the initial dividend would also have to be settled. In addition, it would be useful to decide, at least tentatively, whether or not the company should plan to increase the dividend annually, and if so, at what rate? Eventually, management would have to determine how hard to strive to meet the growth target, because earnings will surely fall below the projected level in some future year.