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Essay / Linear Technologies Case Study - 1062
Depending on the type of shareholder and the tax bracket they are in, shareholders have varying preferences when it comes to receiving dividends and repurchasing shares. If LT increases the dividend by 1 cent to $0.06 per share, the amount of dividend distributed by LT in the third quarter will become $18.7 million (0.06*312.4 number of shares outstanding). This dividend increase in itself, without share buybacks, represents very little value returned to shareholders, especially when compared to LT's $1.5 billion cash balance and therefore may not be attractive to LT’s institutional investor base. But institutional investors like to see dividend increases associated with smart stock buyback moves (repurchasing shares when the stock price is rising).