Linear Technology (LT) is like many firms where it used a combination of dividend payments and share / stock repurchases to distribute cash to its shareholders. With a cash dividend, cash is paid directly to shareholders while, with a stock repurchase, a firm uses its cash to buy back its own shares from the market which in turn reduces the number of outstanding shares (Titman and Keown et al., 2011). LT wanted to be able to attract different dividend clienteles of investors which have the both income goals and growth goals (Baker and Wagonfeld, 2004).
As stated in the article provided, LT is a developer and manufacturer of analog semiconductors and in 1992 it initiated dividends (Baker …show more content…
From the repurchase point of view, Coghlan stated that the reasons for the firm’s stock buyback, especially when the price was weak, were:
1. To offset the Exercise of Employee Stock Options (ESO) (Baker and Wagonfeld, 2004) – Increasing the level of a firm's stock repurchases can offset the effects of securities such as employee stock options, which can decrease diluted Earnings per Share (EPS) (Hurtt and Kreuze et al., 2014). According to a Credit Suisse First Boston analysis, stock compensation packages were responsible for ¾ of the stock buybacks by S&P firms between 1999 and 2003 (Hurtt and Kreuze et al., 2014). Investors and financial analysts tend to use diluted EPS, rather than basic earnings per