How Much Should Our Dividend Be?
Largo Corp. has paid quarterly dividends of $0.70 per share for the last three years and is trying to continue this tradition. Largo’s balance sheet is as follows:
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Largo Corp Balance Sheet December 31, 2008 |
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Assets |
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Liabilities |
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Current assets: |
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Current liabilities: |
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Cash |
$ 50,000 |
Accounts payable |
$ 520,000 |
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Accounts receivable |
450,000 |
Taxes payable |
100,000 |
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Inventory |
1,200,000 |
Accrued liabilities |
90,000 |
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Total current assets |
$1,700,000 |
Total current liabilities |
$ 710,000 |
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Investments |
500,000 |
Bonds payable |
1,500,000 |
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Property, plant, and equipment (net) |
1,600,000 |
Total liabilities |
$2,210,000 |
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Stockholders’ Equity |
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Common stock ($1 par, 69,000 shares |
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outstanding) |
$ 69,000 |
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Additional paid in capital |
621,000 |
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Retained earnings |
900,000 |
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Total stockholders’ equity |
$1,590,000 |
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Total assets |
$3,800,000 |
Total liabilities and stockholders’ equity |
$3,800,000 |
Largo’s net income in 2008 was $400,000. Should Largo continue its $0.70 per share quarterly dividend in the first quarter of 2009? Should Largo increase the cash dividend?