The Wall Street Journal reported (April 13, 2007) that shareholders of Kraft Foo

Question

The Wall Street Journal reported (April 13, 2007) that shareholders of Kraft Foods " can afford to give management more time to improve its brands, sales, margins, and earnings" becasue of the dividends paid by the company and the share buy-back program. Kraft Foods has been losing market share in its cheese and processed-meat product categories and has not been keeping up with private-label competition, as well as new food offerings in healthy snacks and foods. However, due to the dividends and buy-backs, share price appreciation is not the only form of return to the investors. A. How does a shareholder receive a return on his or her investment in a company? B. Do companies that pay dividends have ceratin advantage over companies that do not pay dividends and choose to retain all earnings? C. What signs will investors look for to see if Kraft's management is successful in its strategy? Where in the financial staements will this evidence be presented?

Explanation / Answer

A- Ashareholder receive Return on his/her Investment in two Forms-

1- Dividend

2- Capital appriciation or Investment Growth

B- Certain Companies pays regular dividend to its stakeholders because they know that investors want regular income for their recurring expense but some investors are not interested in regular dividend because they wants wealth maximization. If a company have rich class of investor then dividend is not relevant for company and it will reinvest profit to maximize wealth of Investors.

Company who pays regular dividend may had certain advantages over non dividend paying companies it depends on class of shareholders it had, because if it has higher class of investor then demand of dividend paying stock will neutral or decrese because investor not interested in dividend.

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