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Dividend Policy at Linear

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Linear’s payout policy
Linear's payout policy is comprised out of two elements: dividend payout and stock repurchase. In general, companies decide to payout dividends after transitioning from a high growth stage to mature and stable stage. Linear started paying dividends in 1992. This decision was based on good expectations regarding the analog circuits market and the fact that Linear had a top position in the industry. Also since the IPO, the company had positive cash flows. Thus paying out dividends would signal a strong position in a risky market and the transition to a more mature state of the company. As observed by some investors the technological companies had been just reaching that stage when paying out dividends was possible. The initial dividend per share was set at US$0.05. This amounted for 15% of the total earnings of the company in the fiscal year of 1994. The relatively low level was based on two principles. The first principle was that dividend payout demands a certain respect from investors so in order to send the right signal into the market and attract new investors, the company had to pay dividends. This in turn would mean a thoughtful payout ratio that the company could sustain over time thus leading to the second principle. This states that a low level for dividends would better suit the company in the event of less than expected earnings. In this case the company would not have to cut down or even stop paying dividends. Since 1992, the payout ratio has been growing steadily, getting close to 25% in 2003. Considering the 2002 decline in sales and earnings, the board and its management is debating on whether to increase the ratio or to keep it into accordance with company earnings.

Linear’s financing needs
In the spring of 2003, CFO Paul Coghlan is considered to increase the dividends. With another increase of $0.01/share, Linear’s payout

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