Georgia Atlantic Company

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This is an evaluation of a maturing company’s dividend policy. In this evaluation, we will visit 6 dividend policy proposals and determine which proposal helps the company maximize their shareholders wealth. |

Georgia Company faces a dilemma on its dividend policy that have been used historically, which is to continue the same policy or pay dividends to shareholders. The company always reinvested profits and never paid dividends to its shareholders, this policy has helped the company gain a higher intrinsic value on their stock. Currently the price of the shares is very high in comparison to other similar stocks which may cause investors to prefer investing in less expensive stocks and with the same level of risk (beta). To prepare for the upcoming board meeting we will take a look at the company’s financial position, their stock value to determine whether or not the company needs to implement a new dividend policy.

In comparison with its competitors, Georgia Atlantic stock price is much higher than the stock market, but yet, they have underperformed in all five years in the stock market. As you can see in the table below, Georgia Atlantic CAGR is significantly low compared to the industry. Not only is the CAGR low, but the P/E and M/B ratios are low compared to the industry. We can not base our decision solely based on the low M/B and P/E ratios. Georgia Atlantic is a maturing market, in many cases companies in a mature market will have a low M/B and P/E ratio mainly because their value comes from their assets. Georgia Atlantic total assets has increased drastically in the past years from $366.7M to $1,078.4M.

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Currently, the company is not paying dividends, this can be dissatisfying to the shareholders. Due to the no dividend policy, the company was able to retained 100% of their earnings. This will explain why the company have a better earnings per share ratio. Yet, over the past 15 years the company has slower growth rate compared to...