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Your Company Has a Dividend Policy

Even If You Don't Think So

When speaking to business owners in management interviews, I always ask a couple of question: What has been your dividend policy in the past? And, what do you expect it to be going forward? Interestingly, many business owners reply that they don’t have a dividend policy. At that point, I reply that they have had a dividend policy historically, and that they will have a dividend policy prospectively. Considering this, we seek to answer what is a dividend payout ratio and what are the types of dividends?

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Business Valuation Content on Periscope

Twitter's New App Can Be Used to Share Intellectual Content

After reflecting about Periscope and its potential use for me as a new social media tool, I decided to give it a try. I decided that I’d conduct my own Periscope experiment, and did my first Scope last Friday. I’ll be talking about business valuation and ownership transition, the same topics I now blog about and speak about. View a video in this post of my first scope about “Basic Business Valuation.”

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La Quinta Loses Value with Management and Outlook Changes

Shares of La Quinta Holdings (LQ) dropped sharply upon the surprise announcement on Thursday, September 17th, after the close of trading, of the the resignation of its CEO, Wayne Goldberg. The stated reason for the resignation was “mutual agreement.” Mr. Goldberg had been CEO at La Quinta for about 15 years.

In a second announcement the same afternoon, La Quinta provided modestly lower guidance (than previous) for RevPAR (revenue per available room) and for full year adjusted EBITDA. RevPAR guidance was lowered about 1.0% from an expected increase of 4.5% to 5.5% to the range of 3.5% to 4.5%.

The reaction in the share pricing of La Quinta on Thursday was immediate and severe. After closing at $18.97 per share Wednesday afternoon, the opening price Thursday morning was $15.93 per share, or some 16% lower than the day before. Based on about 131 million shares outstanding, the drop amounted to about $400 million in lost market capitalization.

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Dividends and Earnings Retention, Expected Growth and Business Value

The Earnings Retention Rate Determines Reinvestment Which Determines Growth

This post focuses on the earnings retention rate and its impact on growth. In many previous posts, we have discussed the concept of dividends and dividend policy. Dividends represent the portion of earnings that is available for distribution after the payment of all taxes and accounting for all net reinvestment in the business.

The idea for business owners is to get both sides of this balancing act right. It is good to reinvest for future growth. It is not good to reinvest in unproductive assets. This lowers expected returns and postpones current returns in the form of dividends.

If a business has productive reinvestment opportunities, it is good to try to grow through reinvestment. Reinvestment, as we see, lowers the potential for current returns in favor of future returns gained through growth.

Take your pick. Current returns or future returns or both. Your results will be determined by your earnings retention policy and the mirror dividend policy.

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Labor Day

An Inflection Point for the Year

The summer is sandwiched between Memorial Day, a day to remember those who died while serving in the armed forces of the United States, and Labor Day, a day dedicated to the social and economic achievements of  American workers. I’ve always viewed Memorial Day as a time to reflect and to remember those who died […]

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Capitalizing EBITDA Without Public Company or Private Transaction Comparables

In a recent series of posts, we developed a means to develop direct and credible multiples of EBITDA applicable to specific valuation situations. This is important because EBITDA is part of the universal business language and is a term that appraisers, business owners and market participants understand. It is also important because until now, one way to capitalize EBITDA has been by using (often incomplete and/or dated) guideline transactions in other private or public companies. The other way has been through the use of guideline public companies, which may suffer in comparability based on size and many other differences.

Since writing the posts, I have had a number of opportunities to discuss the methodology with other appraisers and with clients. These conversations have encouraged me to write this single post to summarize this “new” method. In this post, we lay out the methodology for capitalizing EBITDA using the Adjusted CAPM in one place.

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Business Concentrations Come in Many Forms so Work on Them When You Can

In 2012, I wrote a post on my former blog, Valuation Speak, titles Zynga and the High Cost of Concentrations.  In that post, I talked about two key concentrations that were causing its stock price to be battered.  The first had to do with a concentration in revenue in two games, Farmville and Mafia Wars. […]

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Recurring Revenue: Why Is It So Valuable? First Look

Last week, I received an email from Janet, a recurring client asking to have a discussion with me about the value of recurring revenue. The question was interesting and stimulating and, I believe, of interest to many readers of this blog. This is a “first look” at recurring revenue. I plan to take at least a couple of other looks in the near future.