Topic from Chapter 14: Dividend Policy - Suspension of Dividends. Introduction: The "House of Mouse" suspends cash dividend in 2020! The Walt Disney Company was founded in 1923 by Walt and Roy Disney as a small cartoon studio. Today Disney is a global entertainment empire exceeding $67 billion in yearly revenue and a market cap near $280 billion. Along with its film studio division, Disney has business units in television, broadcasting, streaming media, theme park resorts, and cruise lines. The ABC broadcast network, cable channels ESPN and National Geographic, and streaming services such as Disney+ and Hulu are just a few of the recognizable businesses that Disney is involved in. Disney has paid a dividend for 64 consecutive years through 2019 but suspended its dividend in July 2020 and announced that the January and July 2021 dividends would also be foregone as the company continued to cope with the impact of COVID-19. In fiscal 2019, Disney had made semi-annual dividend payments of $0.88 per share, yielding a payout ratio of 28%, not overly, generous given the S\&P 500 average payout ratio of around 50%. On the plus side, the suspension of dividends would save Disney about $3.2 billion annually but there are downside implications as well. Generally speaking, a cut or suspension of dividends is a "signal" that a company is no longer able to pay out the same amount of dividends. Another consideration is that when dividends are cut or suspended, a company that has followed a stable dividend policy will risk upsetting that group of stockholders or "clientele" that have a preference for the company's dividend policy. To learn more, view the YouTube video of Melissa Lee, host of CNBC's Fast Money, as she interviews several analysts regarding the Disney dividend suspension (7:40 minutes). Disney suspends dividend. G Question 1: Would it make more financial sense for Disney to borrow the cash needed to pay the dividends in order to maintain their long history of dividend payments? Answer Yes or No and explain why you answered the way you did. Topic from Chapter 14: Dividend Policy - Stock Repurchases. Introduction: As noted in the Wall Street Journal video (see the YouTube link below), stock repurchases or buybacks have become very popular (4:44 minutes). Since 2010 , S\&P 500 companies have spent $5.3 trillion on repurchasing their own shares of stock. There are advantages to using stock repurchases such as adjusting the company's capital structure. But there are disadvantages including "self-dealing" by corporate executives. Company leaders can take advantage of buybacks by deciding when and how to use excess company cash with an incentive to pay too high a price for a buyback they already own shares of the company's stock. WSJ-Stock Buybacks