CAE: Review of Dividend Reinvestment

CAE: Review of Dividend Reinvestment Policy

Current dividend policy: CAE

At present, the Canadian shareholders of CAE, a global company that manufactures flight and other types of 'simulation' technology, have the option of participating in a dividend reinvestment plan. So long as CAE shareholders are Canadian citizens, they can forego receiving quarterly dividends in the form of cash payments and instead reinvest their common shares in the company. This enables shareholders to immediately reinvest their profits, rather encourages them to spend their quarterly allocation or tuck the dividend away in a less profitable option like a savings bank.

From a company's perspective, dividend reinvestment plans discourage current investors from using their profits to buy stock in other companies. Dividend reinvestment plans enable the company to encourage constant reinvestment in itself and fosters a more stable stock price. A more stable stock price also ensures higher and more consistent profits for current shareholders. Thus dividend reinvestment plans are often thought of as 'win-win' propositions. However, shareholders that participate in such programs, it must be noted, still have to pay taxes upon their profits.

Rationale

According to the 'Investors' section of its website, CAE has paid an dividend average of 5 cents to 1 cent per share, varying with market circumstances, since its birth as a publically-traded company in 2004. As a technologically-oriented company, CAE is still striving to become profitable and to create a niche for itself within its industry. As it is still building its reputation and conducting research and development to expand its technological outreach, thus far it has not been able to garner a huge profit for its shareholders. Instead, it offers shareholders the opportunity to become a part of the company's expansion efforts by reinvesting their profits.

By encouraging shareholders to reinvest their profits, the company will improve its market position and hopefully yield a profit for its shareholders at a much higher margin in the future. Dividend reinvestment programs, because they usually require no brokerage fees, and allow stock to be purchased directly from the company, incentivize the purchase of more stock by current shareholders. They are an excellent way for shareholders to easily and effortlessly build their stock portfolio and small companies to encourage expanded ownership. Shareholders are given a potentially more lucrative way of slowly growing their earnings, rather than receiving a (relatively small, in the case of CAE) dividend.

Suggested changes: Suggestions

Currently CAE only allows Canadian investors to engage in the dividend purchase option. In the future, to expand foreign investment in the company, it could extend a similar policy to all shareholders, regardless of nation of origin.