The Western Company2 Essay

Submitted By jordan502
Words: 2199
Pages: 9

The Western Company
By: Kyle Orsburn and Jordan Gilliam
Managerial Finance

Table of Contents:

1. Summary and Dilemma
2. Problems and Questions
3. Analysis and Conclusions
4. Evaluation of Alternatives
5. Final Decision
6. References
Summary: Tina Clark is the CFO of The Western Company. This company owns two utility companies and Western Enterprises, Inc. The company currently has been discussing and debating what to do next with their dividend policy. Tina has looked over many options and can see advantages of both positions. She has decided to hire a firm to help study for dividend policy and see what needs to be done.

Dilemma: Tina wants to know what should happen to their dividend policy. Some options include lowering it, raising it, keeping it the same, or doing a dividend split. Every option must be analyzed to figure out what would be best for The Western Company.

Problems and Questions in the Case:
1 Why is The Western Company’s dividend policy so much higher than competitors?
2 The case constantly mentions FPL. Is the Western Company similar to this company? Should they even consider comparing themselves to that company?
3 A better insight of the impact of higher vs. lower dividend prices.
4 Could our company afford to lower the price of dividends?
5 Examine tables and charts.
6 Interested in basic terminology.

Analysis and Conclusions:
1 Beginning in the 1990s the average utility company entered with a dividend policy much greater than competitors and even remained higher when competition increases. The reasoning was that it made the company look more appealing so they stuck with these high prices. If they did decide to drop their price it could be taken as a negative sign. In the past when utility companies reduced their dividends it was due to operating problems or write-offs. Because of this, it may look like something is going wrong internally in the company which could make investors nervous. If the price was decided to be lowered, the investors must be involved in the decision to the point where they know the decision is not based off of problems, but based on trying to better the company and make it more prosperous.
This company has always has a dividend policy that is greater than competitive companies and the policy has never been lowered. This was one thing that makes the board of The Western Company very proud. So would lowering the dividend policy be worth the risk of ruining relationships and history that has made the company who it has become today?

2 I do not feel that The Western Company is comparing their company to FPL but more focused on comparing their financial data and interpretations, but I do feel that these company have some similar aspects. Both companies deal with the electric portion of utilities so they are in similar markets. This is good for The Western Company because they can easily identify with this company and hopefully learn something from their decisions.

3 Coming up with a dividend policy is a challenging task, and changing a set dividend policy is even more difficult. The fact that The Western Company has had relatively the same dividend policy and it has been able to work for so long is impressive; especially because it is so much higher than competitors. Maintaining a lower dividend price is easier to manage and has less decisions and controversies involves. When a company has a much higher policy, such as The Western Company, questions begin to arise. The investors of course are not complaining because the high numbers is what made them join in the first place. However, the company becomes concerned because if there competitors have lower prices, they could to which would save them money. The question is would lowering the price be worth upsetting and possibly losing some investors.
High Dividend Price-
a. More attractive to investors
b. Makes company seem more favorable
c. Can be harmful and too expensive for company
d. Can lead to increased