DIVIDEND POLICY

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LOGO

INTRODUCTION

The term Dividend refers to that part of profits of a company which is distributed by the company among its shareholders.

The investors basically have two desires,

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a) high percentage of dividends &

b) increase in their investment.

These two factors influence the dividend policies.

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TYPES/FORMS OF DIVIDEND POLICY

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Under a regular dividend policy, companies pay out dividends to shareholders every year. 

With an irregular dividend policy, there’s essentially no set schedule for issuing dividends,

Under the no dividend policy, the company doesn’t distribute dividends to shareholders.

Factors Affecting Dividend Policy

• Profitability
• Management’s opinion
• Liquidation position
• Debt and other obligations
• Type of industry
• Ownership structure
• Legal Rules

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Lets understand application of these factors through real life examples of some companies.

• From the time of its public listing In 2004, TCS has been meeting its all capital requirements through internal accruals and continuously distributing regular annual dividends and special dividends to its shareholders.
• TCS’s Market share price and reputation enhanced owing to its consistent commitment towards its shareholders.
• TCS has good profitability and Liquidity position due to which they offer good dividends

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TATA CONSULTANCY SERVICES

CFO’S VIEW ON DIVIDEND POLICY

• Interviewer- TCS has been rewarding shareholders with buybacks and dividends. Now that growth has made a comeback, do you expect any change in that policy? Will shareholders get slightly higher rewards?�V Ramakrishnan- We have been consistent in our policy of distributing 80-100% of our free cash flow unless there is some specific requirement like an acquisition. We have been consistent with this policy over the years and I do not see us moving away from that. I do not think increasing it at this point of time is advisable.

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Revenue and Net profits of TCS

(Profitability affects dividend policy)

Reliance Industries Ltd

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Reliance Industries Ltd. has declared 22 dividends since April 26, 2001. In the past 12 months, Reliance Industries Ltd. has declared an equity dividend amounting to Rs 10.They have an average liquidity position so the dividend distruted is relatively less.per share.

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Revenue and Net profits of Reliance

Profitability and liquidity position affects Dividend Policy

Increasing profits

• The country’s wealthiest promoter – Mukesh Ambani family is fourth on the list with dividend income of nearly Rs 2,217 crore in FY21.21-Jun-2021.
• Ambani’s stake in Reliance Industries is however worth Rs 7.21 trillion or around $100 billion, which is far ahead of Wipro’s Azim Premji or Anil Agarwal of Vedenta. � This is because Reliance Industries (RIL) has a much lower dividend payout ratio than other big listed companies. In FY21, RIL distributed just 7.3 per cent of its net profit on equity dividends, against Wipro’s pay-out ratio of 92 per cent and Vedanta’s 24 per cent.

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Ownership Structure affects Dividend Policy

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Vodafone idea ltd.

Vodafone Idea Ltd. Has declared 4 dividends since Sept. 5, 2013.

• When the Vodafone and Idea merger was announced the Idea prices started to drop. And the share price of Idea declines from Rs. 97.70 on 20th March 2017 to Rs. 81.81 on 6th Sep 2017.

But the merger was important it gave support to the two companies, which were struggling to survive in the industry. Combined resources will help to compete with only the two biggest brands(Jio and Airtel).

But the profitability of the company has not stabled yet, it is facing losses due to which it is also not able to distribute dividend

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Profitability and liquidity position affects Dividend Policy

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The depth of the crisis is difficult to imagine. When the merger happened in mid-2018, Vodafone Idea was trading in the 50-70 rupees price band. However, the price plummeted to below Rs. 10 in the following year, and at one point, VI was trading at Rs. 3.4 per share

Type of Industry and market competition affects Dividend Policy

• State-owned gas utility GAIL (India) Ltd has declared a second interim dividend of 50 per cent (Rs 5 per share) for the current fiscal year ending March 31, 2022. The total dividend payout will be Rs 2,220.19 crore with a record date of March 22, the company said in a statement

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GAIL’s scrip rose to a high of Rs 156.40 as against Rs 152.40 at previous close on the National Stock Exchange.

GAIL (India) Ltd.

GAIL’s liquidity position is not so sound but it has earned good amt of profits

• Manoj Jain, chairman and managing director, GAIL, stated that the company shareholders have been provided with steady long-term returns on their investments.
• Based on the current shareholding of Government of India (51.45 per cent), dividend of Rs 1,142.29 crore shall be paid to the government and Rs 1,077.90 crore to other shareholders.

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“This is the highest ever dividend payment in terms of total dividend amount by GAIL,”

Shareholder’s expectations And company’s Policy affect dividend policy

For the year ending March 2021 Oracle Financial Services Software has declared an equity dividend of 4000.00% amounting to Rs 200 per share. At the current share price of Rs 3603.50 this results in a dividend yield of 5.55%.�The company has a good dividend track report and has consistently declared dividends for the last 5 years.

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ORACLE Financial services software

• Oracle Financial Services Software | The company announced an interim dividend of 9,700 percent in 2014. On December 16, the stock was trading at Rs 3,110.45 and its 52-week high price is Rs 3402.05.

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• With Tata Motors skipping a dividend payout for the first time in 15 years, chairman Cyrus Mistry said he is pained for not being able to give the “rightful dividend” to the investors, who questioned the reasons given by the company at its AGM
• Answering shareholders’ queries and demands in this regard, Mr Mistry said, “My personal belief is that it’s a bad day for the company. I feel extremely unfortunate this day.

-in AGM OF Tata Motors in 2015

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TATA MOTORS

Huge Losses!!

No Dividend!!

• Tata Motors skips dividend for the third year in a row in FY19 and it would be five-year drought for company’s shareholders if we exclude a token dividend of 20 paise per share that the company paid its shareholders in FY16. 
• Owing to accumulated losses and debt obligations, Tata Motors

Is not able to distribute dividend.

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Indian Oil Corporation Ltd

• For the year ending March 2021 Indian Oil Corporation has declared an equity dividend of 120.00% amounting to Rs 12 per share. At the current share price of Rs 127.90 this results in a dividend yield of 9.38

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Dividend- ₹7.5 per share

Closing price- 104.10

Opening price- 99.8

Wipro Ltd

• For the year ending March 2021 Wipro has declared an equity dividend of 50.00% amounting to Rs 1 per share. At the current share price of Rs 559.20 this results in a dividend yield of 0.18%.�Wipro Ltd. Has declared 32 dividends since May 8, 2000.�The company has a good dividend track report and has consistently declared dividends for the last 5 years

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The Premji family earned around Rs 7,337 crore by way of equity dividends and proceeds from share buyback in FY21. Wipro paid a total equity dividend of Rs 548 crore in FY21. 

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Ownership Structure And Profitability affects Dividend Policy

Avenue Supermarts Ltd.

• Avenue Supermarts Limited, d/b/a Dmart, is an Indian retail corporation that operates a chain of hypermarkets in India. It was founded by Radhakishan Damani in 2002, with its first branch in Powai’s Hiranandani Gardens

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• Avenue Supermarts's Dividend Payout Ratio for the three months ended in Dec. 2021 was 0.00.
• As of today (2022-04-14), the Forward Dividend Yield % of Avenue Supermarts is 0.00%.
• Avenue Supermarts's Dividends per Share for the three months ended in Dec. 2021 was ₹0.00.

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Big Giants who Follow No Dividend Policy

• Alphabet (GOOG)�Meta (FB), formerly Facebook�Amazon (AMZN)�Biogen (BIIB)�Tesla (TSLA)
• Netflix
• Paypal
• Adobe systems
• Alibaba

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Why some companies donot distribute Dividends?

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Companies that don't pay dividends on stocks are typically reinvesting the money that might otherwise go to dividend payments into the expansion and overall growth of the company. This means that, over time, their share prices are likely to appreciate in value.

The choice not to pay dividends may be more beneficial to investors from a tax perspective

CONCLUSION

• The firm paying out dividends is obviously generating incomes for an investor, however even if the firm takes some investment opportunity then the incomes of the investors rise at a later stage due to this profitable investment.
• Dividend Policy largely depends on company’s cashflows and profits.

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