Georgia Atlantic Case Study

No Cash Dividends, No Stock Dividends or Split. In the case of Georgia Atlantic, this strategy is not recommendable because of several factors. First of all, the most recent Market-toBook value is well below 1, meaning that the company has not invested in any profitable projects anymore. The retained earnings would have generated a higher shareholder value if they would have been paid out to the shareholder. Furthermore the share price of the firm would stay rather constant and would not diverge too much from the optimal range between $20 and $40. A lower share price would also increase the P/E ratio of Georgia Atlantic signalling a healthier company to the market.

Immediate Cash Dividend, but No Stock Dividend or Split. The strategy to pay immediate cash dividends is definitely superior to the no cash dividend strategy, because Georgia Atlantic can increase shareholder value much more by paying out dividends than retain its earnings due to the fact that the company can be regarded as a value company with only a few growth opportunities. Still there is the problem that the firm’s stock price is too high. The actual price per share of $1,902 should somehow be lowered to a price somewhere in between the range of $20-$40. Therefore a high stock split is very recommendable. Additionally, with the low level of liquid assets, this will put even more pressure on the firm.

Immediate Cash Dividend plus a Large Stock Split. The shortcoming of the above strategy is solved in this proposal. The immediate cash dividend would increase shareholder value while a large stock split would lower the share price significantly to the required boundary. To reach a stock price around $30/share, the company has to declare a stock split of 63 to 1, meaning that every shareholder gets 63 new shares per share he already holds. A lower share price also would increase the liquidity of the share, because more investors are able to buy a round lot.

Immediate Cash Dividend plus a Large Stock Dividend. Leading to almost the same result, the immediate cash dividend together with a large stock dividend is not as recommendable as the third proposal is. Stock dividends are rather useless when trying to severely reduce the share price. They are normally used to maintain the price of a share or to slightly lower it. So in the case of Georgia Atlantic a stock split is more favourable than a stock dividend to cut the share price.

Cash Dividend, Stock Split, and Periodic Stock Dividends. Putting together the last three proposals, the shortcomings of each strategy are dealt with in this one. Since Georgia Atlantic is a value-firm, it should strongly consider paying out a regular cash dividend to its shareholders as discussed in 2. Furthermore a stock split would lower the share price and thus makes it possible for more investors to buy a round lot of Georgia Atlantic’s shares. In addition to that, a regular stock dividend assures a rather stable share price. Although the gains seem to prevail, one should not forget about the risks that each strategy entails as discussed beforehand.

Share Repurchase Plan This plan would enable Georgia Atlantic to react very flexible to the needs of certain shareholders. Furthermore the capital outlay for the firm is reduced due to the fact that no dividends have to be paid out and no transaction costs for stock dividends occur. Most shareholders would also prefer to hold their shares and not to resell them to the company. Although this plan definitely has some major advantages, it also bears so disadvantages. Those investors that still request a regular cash dividend are not going to be satisfied. Next to that is the share price still going to be very high and the gains from a lower share price cannot be realized