Rate due which its share price reduces till february
Answer:
Introduction
eport.
Weighted average cost of capital
| 2015 | 2016 | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Weights (A) | Cost of capital (B) | A*B | Weights (A) | Cost of capital (B) | A*B | Weights (A) | Cost of capital (B) | A*B | |
| Equity | 0.52 | 2.8% | 0.0144 | 0.56 | 5.0% | 0.0283 | 0.49 | 2.7% | 0.0132 |
| Debt | 0.48 | 4% | 0.0174 | 0.44 | 4.4% | 0.0191 | 0.51 | 2.7% | 0.0136 |
| WACC | 3.17% | 4.74% | 2.68% | ||||||
Dividend policy
The policies of dividend are the guidelines framed and followed by the companies for deciding and declaring the amount of dividend to pay out in a particular fiscal year. As per some facts and researches it is observed that dividend policy is irrelevant for some investors as they can easily buy and sell their shares as and when they require cash. However, irrespective of this, it is noted that the policy of dividend do impact the share prices of the company (Baker, 2009). Generally, when a company pay out some dividends, its stock prices rises as payment of dividends generate income to the investors. Therefore, firms paying regular dividends attract more investors as compare to the ones who pay irregular or no dividends to their stakeholders. As a result, the profitability and stock prices are highly influenced and impacted. In order to decide the amount of dividend and study the dividend policy of a company, analysts evaluates and examines the dividend pay-out ratios of the firms. DPR measures the total dividends paid by the company to its investors against its net income during a particular financial year. It is calculated by dividing the dividend per share with the earnings per share of the organization (Frankfurter, Wood & Wansley, 2003).
| 2015 | 2016 | 2017 | |
|---|---|---|---|
| Dividend per share (in cents) | 30 | 31 | 31 |
| Earnings per share (in cents) | 34.5 | 31.6 | 32.5 |
| DPR | 86.96% | 98.10% | 95.38% |
(Source: Yahoo Finance. 2018).
From the above chart, it can be observed that the share price of Telstra Corporation has been reduced over the past years and are significantly impacted by the dividends declared by the company. Telstra paid dividend on August 2015, at a rate of 0.155 due to which its share price reduces till February 2016. In March and August 2016, the company again declared the dividends on the same rate which further reduces the price till January 2018. In February 2018, Telstra paid dividend of 0.075 cents which again results in the decline of stock prices. Overall, it can be said that the dividends has a negative impact on the stock prices of Telstra Corporation Limited.
The above report concludes that stock analysis is very important for the investors to conduct, so that they can clearly understand the position and performance of the company in a market. The analysis helps to study the movements in the stock prices of the company along with the changes in market return. In addition, calculation of WACC and evaluation of dividend policies provide a clear picture of the performance of company’s stocks during the past three years. Overall, such analysis helps in taking better investment related decisions such as purchasing or selling the shares of a particular entity. Thus, it can be said that before making any kind of investment the investors should properly analyse its stocks and their performance.
References
Fernandes, N. (2014). Finance for Executives: A practical guide for managers. NPVPublishing.
Frankfurter, G., Wood, B. G., & Wansley, J. (2003). Dividend policy: Theory and practice. Elsevier.