If we take a look at the company’s compounded annual growth rate in EPS we can see that Georgia Atlantic’s growth rate is really low compared to the industry average. Furthermore we can see from the first table that Georgia Atlantic’s P/E ratio is also lower in all the years as compared to the industry and the M/B ratio is also relatively low compared to the industry. Due to the fact that Georgia Atlantic is operating in a relatively mature market, there is a very low possibility for growth, that’s why we consider Georgia Atlantic as a low growth company. For low growth companies it is normal to have a low P/E ratio and a low B/M ratio because most of the company’s value comes from their current operations and assets. Because …show more content…
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 signaling a healthier company to the market.
2) Immediate Cash Dividend, but No Stock Dividend or Split
The strategy to pay immediate cash dividends is definitely better 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 be lowered to a price as proposed by the managers somewhere in between the range of $20-$40. Therefore a high stock split is very recommendable. 3) Immediate Cash Dividend plus a Large Stock Split
The immediate cash dividend would increase shareholder value while a large stock split would lower the share price significantly to the average price range. To reach a stock price in between $20 and $40 dollars per share, the company has to declare a stock split of maximal 95 to 1 ($20/share) and minimal 48 to 1 ($40/share) meaning that every shareholder gets 95 new shares per share he already holds in the