The reactions are involved with the potential movement of stock price and change in debt interest rate. Based on the Exhibit 4, 5, 6 and 7 and a recently published study about propensity for paying dividends, the potential change in stock price resulted from various dividend policies could be forecasted.
Secondly, Campbell could take the financial slack into consideration based on the results in the first step, the estimated optimal capital structure and the managements attitude to debt.
Thirdly, Campbell might assume different growth rates in various economy and competitiveness scenarios and redo the above two steps to examine the all-round impacts to the shareholders wealth imposed by the alternative dividend policies.
Finally, for the sake of avoiding the large change in dividend payment in the following years, the free cash flow to equity (FCFE) and cash payout ratio can be calculated on the basis of Exhibit 8 and estimated capital structure. Also, the question about how to smooth the cash dividend can be answered.
Based on my intuition and preliminary analysis, I recommend Ms. Campbell consider to repurchase stock (equivalent to 20%~30% dividend payment) both to make clear to the public market that the managements confidence in the future and the underestimate of current stock price and to avoid the pressures from maintaining big dividend payment in the future. View More »