DIVIDEND CUTS BY UK COMPANIES THIS YEAR EXCEED £30 BILLION

 

Read the article entitled “DIVIDEND CUTS BY UK COMPANIES THIS YEAR EXCEED £30 BILLION” from Morningstar which can be found here:

https://www.ajbell.co.uk/news/dividend-cuts-uk-companies-year-exceed-ps30-billion

The article mentions the following companies listed on London Stock Exchange:

BP
GlaxoSmithKline
Legal & General
Diageo
Tesco
SSE
Prudential
Anglo American
CRH
Unilever
3i
Standard Life Aberdeen
CCH
London Stock Exchange Group
Admiral
Smith & Nephew
SEGRO
Hargreaves Lansdown
Berkeley Group
Pearson
DCC
Hikma Pharmaceuticals
Croda
Sage
Spirax-Sarco Engineering
(Vodafone has been omitted as we will use it as an example in class)

You will be allocated ONE company from the list above.

Write a report to an investor considering investing in the company that you have selected, referring to the company’s listing on the London Stock Exchange. Your report should cover the following areas:

(a) Discount Rates & Capital Structure

i. Calculate your chosen company’s Cost of Equity (Ke), Cost of Debt (Kd), and Weighted Average Cost of Capital (WACC) for each year for at least the last 5 years. Show your workings and state the sources for any of your assumptions.

(15 marks)

ii. Critically assess and discuss the capital structure that your chosen company has and the impact that these choices have made on its cost of equity, cost of debt, and WACC. If your company has any debt funding, assess its ability to make the repayments required using a range of appropriate ratios.

(10 marks)

(b) Dividend Policy:

i. What has the company paid out as dividends in each of the last 5 years? How is it changing?

ii. Critically assess whether these pay-outs are affordable using a variety of measures.

iii. Critically analyze whether the dividends that have been paid are consistent with the company’s stated dividend policy.

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