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Investors may attempt to infer a company's dividend policy by observing its profits, dividends and payout ratio over time. During the time of GFC, Cabcharge

Investors may attempt to infer a company's dividend policy by observing its profits, dividends and payout ratio over time. During the time of GFC, Cabcharge Australia Limited was under pressure to reduce or omit some of its dividend payments. Data collected from the previous annual reports of the company are shown in the following table:

Year to

30 June

Profit after tax

($M)

Dividend

per share (cents)

Dividend

payout ratio %

2002

16.1

10.0

68.9

2003

20.3

12.0

66.8

2004

23.1

13.75

66.7

2005

27.8

17.0

68.7

2006

38.0

23.0

67.9

2007

51.8

30.0

68.0

2008

59.0

34.0

68.5

2009

61.4

34.0

66.7

2010

57.6

34.0

71.0

  1. Based on the dividend payout ratio data for the period 2002 to 2009, how would you describe Cabcharge's dividend policy?
  2. When the figures for 2010 are included, how might your inferences about the company's dividend policy change in 2011?
  3. Explain how the reduction in, or omission of, Cabcharges dividends may harm its shareholders.

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