Dividend policy is concerned with taking a decision regarding paying cash dividend in the present or paying an increased dividend

at a later stage. The firm could also pay in the form of stock dividends which unlike cash dividends do not provide liquidity to the investors, however, it ensures capital gains to the stockholders. The expectations of dividends by shareholders helps them determine the share value, therefore, dividend policy is a significant decision taken by the financial managers of any company.

Relevance of dividend policy

Dividends paid by the firms are viewed positively both by the investors and the firms. The firms which do not pay dividends are rated in oppositely by investors thus affecting the share price. The people who support relevance of dividends clearly state that regular dividend reduce uncertainty of the shareholders i.e. the earnings of the firm is discounted at a lower rate, thereby increasing the market value. However, its exactly opposite in the case of increased uncertainty due to non-payment of dividends.

Irrelevance of dividend policy

The Modigliani and Miller school of thought believes that investors do not state any preference between current dividends and capital gains. They say that dividend policy is irrelevant and is not deterministic of the market value. Therefore, the shareholders are indifferent between the two types of dividends. All they want are high returns either in the form of dividends or in the form of re-investment of retained earnings by the firm. There are two conditions discussed in relation to this approach : decisions regarding financing and investments are made and do not change with respect to the amounts of dividends received. when an investor buys and sells shares without facing any transaction costs and firms issue shares without facing any floatation cost, it is termed as a perfect capital market.[5]

Residuals theory of dividends

One of the assumptions of this theory is that external financing to re-invest is either not available, or that it is too costly to invest in any profitable opportunity. If the firm has good investment opportunity available then, they'll invest the retained earnings and reduce the dividends or give no dividends at all. If no such opportunity exists, the firm will pay out dividends. If a firm has to issue securities to finance an investment, the existence of floatation costs needs a larger amount of securities to be issued. Therefore, the pay out of dividends depend on whether any profits are left after the financing of proposed investments as floatation costs increases the amount of profits used. Deciding how much dividends to be paid is not the concern here, in fact the firm has to decide how much profits to be retained and the rest can then be distributed as dividends. This is the theory of Residuals, where dividends are residuals from the profits after serving proposed investments. [6] This residual decision is distributed in three steps: evaluating the available investment opportunities to determine capital expenditures. evaluating the amount of equity finance that would be needed for the investment, basically having an optimum finance mix. cost of retained earnings<cost of new equity capital, thus the retained profits are used to finance investments. If there is a surplus after the financing then there is distribution of dividends

ACI was established as the subsidiary of Imperial Chemical Industries (ICI) in the then East Pakistan in 1968. After independence the company has been incorporated in Bangladesh on the 24th of January 1971 as ICI Bangladesh Manufacturers Limited and also as Public Limited Company. This Company also obtained listing with Dhaka Stock Exchange on 28 December, 1976 and its first trading of shares took place on 9 March, 1994. Later on 5 May, 1992, ICI plc divested 70% of its shareholding to local management. Subsequently the company was registered in the name of Advanced Chemical Industries Limited. Listing with Chittagong Stock Exchange was made on 22 October 1995. Advanced Chemical Industries (ACI) Limited is one of the leading conglomerates in Bangladesh, with a multinational heritage. The company has diversified into three major businesses. Like Pharmaceuticals Consumer Brands & Commodity Products Agribusinesses

1.2: Company Mission

ACIs mission is to enrich the quality of life of people through responsible application of knowledge, skills and technology. ACI is committed to the pursuit of excellence through worldclass products, innovative processes and empowered employees to provide the highest level of satisfaction to its customers.

1.3: Company Vision

To realize the mission ACI will: Endeavor to attain a position of leadership in each category of its businesses. Attain a high level of productivity in all its operations through effective and efficient use of resources, adoption of appropriate technology and alignment with our core competencies. Develop its employees by encouraging empowerment and rewarding innovation. Promote an environment for learning and personal growth of its employees. Provide products and services of high and consistent quality, ensuring value for money to its customers. Encourage and assist in the qualitative improvement of the services of its suppliers and distributors. Establish harmonious relationship with the community and promote greater environmental responsibility within its sphere of influence.

1.4: Company Value

Quality Customer Focus

Fairness Transparency Continuous Improvement Innovation

1.5: Business Policy:

1.5.1: Quality Policy
ACI's mission is to achieve business excellence through quality by understanding, accepting, meeting and exceeding customer expectations. ACI follows International Standards on Quality Management System to ensure consistent quality of products and services to achieve customer satisfaction. ACI also meets all national regulatory requirements relating to its current businesses and ensures that current Good Manufacturing Practices (cGMP) as recommended by World Health Organization is followed for its pharmaceutical operations. The management of ACI commits itself to quality as the prime consideration in all its business decisions. All employees of ACI must follow documented procedures to ensure compliance with quality standards. The pool of human resources of the company will be developed to their full potential and harnessed through regular training and their participation in seeking continuous improvement of work methods

1.5.2: Environmental Policy

ACI is committed to maintain the harmonious balance of our eco-system and therefore constantly seeks ways to manufacture and produce products in an eco-friendly manner so that the balance of nature remains undisturbed and the environment remains sustainable. In pursuit of this goal, ACI will:

Comply fully with all local and national environmental regulations.

Conserve natural resources like water and energy for sustainable development, and adopt environmentally safe processes. Ensure appropriate treatment of all effluents prior to discharge, to prevent pollution or degradation of environment. Ensure appropriate communication and cooperate with internal and external interested parties on environmental issues. Create awareness on environmental issues among our employees and suppliers. Adopt modern waste management technology.

1.6: Ten principles are:

1.6.1: Human Rights
To support and respect International Human Rights within the company's sphere of influence. To make sure that their own corporations are not complicit with Human Rights Violation.

1.6.2: Labuor
To end discrimination in the workplace. Abolition of child labour. The right to collective bargaining and recognition of freedom of association. To eliminate the use of forced and compulsory labour.

1.6.3: Environment
To support a precautionary approach to environmental challenges. To undertake initiative to promote greater environmental responsibility. To encourage the diffusion of environmentally friendly technology.

1.6.4: Anti-Corruption
To work against all forms of corruption, including extortion and bribery.

ACI pledges to keep all its employees, customers, shareholders and suppliers regularly informed about the compact and the companys initiatives to uphold the principles

1.7: Business Unites

Strategic Business Units: Pharmaceuticals Consumer Brands & Commodity Products Agribusinesses: Crop Care Public Health Livestock & Fisheries Fertilizer Cropex Seeds Motors

1.7.1: Pharmaceuticals
ACI carries the legacy of ICI- world renowned British Multinational in providing the people of Bangladesh with quality medicines and healthcare products. Its state-of-the art

pharmaceutical plant represents Bangladesh's quest for a truly world class manufacturing facility. ACI's rich heritage leads to innovative and higher value added formulations. The comprehensive product range of ACI pharmaceuticals include products from all major therapeutic classes and in various dosage forms like tablet, capsule, dry powder, liquid, cream, gel, ointment, ophthalmic and injectable. ACI Pharma also has state of the art plant on Novel Drug Delivery System (NDDS). It produces world class Modified Release drug and medicine to cater the requirement of pharmaceutical manufacturer of domestic and international market. It exports high quality pharmaceuticals to a good number of countries of Asia, Africa & South America.

1.7.2: Consumer Brands & Commodity Products

The Consumer Brands Division boasts in having an unequivocal presence in consumers' heart with the market leading brands like ACI Aerosol, ACI Mosquito Coil, Savlon. These are the persistent performers in keeping the household clean and free from germs and harmful insects. The necessity of pure food in the minds of Bangladeshi consumers especially in the commodity food business has pushed ACI to fill up the market gap by producing commodity products such as Salt, Flour and Spices. Now the customers of Bangladesh are ensured with 100% pure Salt, Spices products and Wheat products under the brand name of "ACI Pure". ACI also represents the world renowned product range of Colgate, Nivea, Tetley, Godrej & Dabur in Bangladesh through distribution and forming joint ventures.

1.7.3: Agribusinesses
ACI Agribusiness is the largest integrator in Bangladesh in Agriculture, Livestock and Fisheries and deals with Crop Protection, Seed, and Fertilizer, Agrimachineries, and Animal Health products. These businesses have glorified presence in Bangladesh.

CC & PH supplies crop protection chemicals, Seed supplies Hybrid Rice, vegetable and Maize seeds, Fertilizer Supplies Micronutrient and Foiler fertilizer, Agrimachineries supplies Tractors, Power Tiller and Harvester and Animal Health supplies high quality Nutritional, Veterinary and Poultry medicines and vaccines. ACI Agribusiness is having strong partnership with national and international R & D companies, universities and research institutions. Before introducing any product, it is elaborately tested in the laboratory and farmers field. ACI provides solution to the farmers through a large team of scientists & skilled professionals.

1.8: ACI has the following subsidiaries: ACI Formulations Ltd. Apex Leather crafts Limited ACI Salt Limited ACI Pure Flour Limited ACI Foods Limited Premiaflex Plastics Limited Creative Communication Limited ACI Motors Limited ACI Logistics Limited

1.9: Joint Ventures: ACI Godrej Agrovet Private Limited Tetley ACI (Bangladesh) Limited Asian Consumer Care (Pvt) Limited

1.10: Department of ACI 1.10.1: Administration department Administration department specially work to maintain friendly environment through proper monitoring with the company policy. 1.10.2: Finance and planning ACI Finance and Planning function is the nerve centre of the conglomerate. The major areas of its activities include: Corporate Finance Treasury Insurance and risk management Costing Credit Management Accounts payable management General accounting Taxation New business management

1.10.3: Commercial department Commercial department of ACI ensure all RM & PM to run smooth business. Also maintain a good liaison with the customer both national and international.

1.10.4: MIS department MIS department of ACI ensures the overall IT related supports for the company. Manages a smooth operation of software's, hardware trouble shooting and business databases related to sales and inventory. MIS provides customized report and data analysis to the management.

1.10.5: Distribution department The company maintains strategically located sales centers in nineteen different locations across the country. Distribution system through its more than 100 skilled and trained manpower and a large fleet over eighty vehicles. Capable of maintaining a cold chain for vaccines and insulin.

1.10.6: Training department Training activity of ACI is to build up for all members of ACI family through the training, skill development, and workshop.

1.10.7: HR department

HR Policies and procedures for Recruitment & Selection, Manpower Planning and succession planning. The combination of qualitative aspects and Balanced Score Card for performance appraisal. Policies regarding car loan, gratuity, provident fund and hospitalization. We offer performance bonus, leave fare assistance, festival bonus and workers profit

participation fund during different times within a year. ACI is a place to learn, grow and contribute for improving the quality of life of people.

1.10.8: Facilities: ACI believe that all members of ACI are assets so company tries to fulfill staff want and demand. Two special Eid bonuses for all members of ACI To provide handsome incentive program for field level. To provide tours national and international in every year. To provide advance money due to field tours and others occasions. ACI provide medical bill if any members are admitted in the hospital.

1.10.9: Financial Statement The maximum financial support comes from the bank due to consolidated long term and short term bank loans. The support banks are: Long term bank loans Standard Charterd Bank Citibank N.A. The Hongkong and Shanghai Banking Corporation Limited Eastern Bank Limited

The City Bank LimitedShort term bank loans Standard Charterd Bank Citibank N.A. The Hongkong and Shanghai Banking Corporation Limited Eastern Bank Limited The City Bank Limited Commercial Bank of Ceylon Plc AB Bank Limited BRAC Bank Limited

1.11: Six Years Comparative Statistics 2004-2009

Analysis and dividend policy:

Year 2007 2008 2009 2010 2011 Net Income 65.53 203.29 160.33 91.61 146.85

Net Income
250 Taka in Millionm 200 150 100 50 0 2007 2008 2009 Year 2010 2011 Net Income

Explanation: From the graph and as well as from the table we see that there was fluctuation in net income over the year. Initially we see that net income was lower and then in 2008 it increased massively but after that it started to behave in decreasing trend till 2010. In 2011 there was slight increase in net income.

Year 2007 2008 2009 2010 2011

Net Income 65.53 203.29 160.33 91.61 146.85

Dividend Dividend Payout Ratio 0 0% 75 36.89% 75 46.78% 90 98.24% 225 153.22%

Dividend Payout Ratio

250 200 Taka in Million 150 100 50 0 2007 2008 2009 Year 2010 2011 Net Income Dividend

From the above we can see that there was no dividend in 2007. But from 2008 to 2010 company ensured standard dividend for its investors. But in 2011 it has given comparatively huge amount of dividend than that of its previous years, which is even more than its particular years net income.

Year 2007 2008 2009 2010 2011

Dividend 0 75 75 90 225

Cash Stock Cash Stock Dividend Dividend Dividend Dividend % % 0 0 0 0 25 50 33.33333 66.66667 75 0 100 0 90 0 100 0 75 150 33.33333 66.66667

Clasification of Stock & Cash Dividend

160 140 120 Taka in Million 100 80 60 40 20 0 2007 2008 2009 Year 2010 2011 0 0 25 0 0 50 75 90 75 Cash Dividend Stock Dividend 150

In the initial year company had decided to consider all its net income as retained earnings. It started to pay dividend from 2008. In that year it gave higher stock divided than cash dividend and the ratio was 1:2. After 2008 it gave only cash dividend in the two following years. Then it again gave higher stock dividend than cash dividend in 2011 where the ration was again 1:2.

Year

Net Income 65.53 203.29 160.33 91.61 146.85

Retained Dividend Earnings 0 75 75 90 225 65.53 128.29 85.33 1.61 -78.15

Retained Earnings as % of Net Income 100 63.11 53.22 1.76 -53.22

2007 2008 2009 2010 2011

Retained Earnings as % of Net Income

100 100 80 % of Net Income 60 40 20 0 -20 -40 -60 Year -53.22 2007 2008 2009 2010 2011 1.76 63.11 53.22 Retained Earnings as % of Net Income

In the initial year company kept all Net Income as Retained Earnings for exploring the opportunities that in later years followed a downward trend. In the year 2011 it even hasnt kept any retained earnings rather I gave more dividend than its net income.

Year 2007 2008 2009 2010 2011

Earnings Per Share 2.67 8.13 5.3 3.05 4.89

Earnings Per Share

9 8 7 6 5 4 3 2 1 0 8.13

Taka Per Share

5.3 3.05

4.89 Earning Per Share

2.67

2007

2008

2009 Year

2010

2011

Over the year the earnings per share fluctuated a bit. In the initial year it was Tk. 2.67 per share that boomed in year 2008 by ensuring Tk. 8.13 per share. In Following two years it followed a downward trend but in 2011 it shown a 19positive turn.

Year 2007 2008 2009 2010 2011

Dividend 0 75 75 90 225

Retained Earnings 65.53 128.29 85.33 1.61 -78.15

Retained Earnings Vs. Dividend

250 200 Taka in Million 150 100 50 0 -50 -100 2007 2008 2009 2010 2011 Dividend Retained Earnings

Year

Year 2007 2008 2009 2010 2011

Net Dividend Income 65.53 203.29 160.33 91.61 146.85 0 75 75 90 225

Change in % of Dividend 0 0.00% 0.00% 20.00% 200.00%

Change in % of Dividend
2 1.5 1 Change in % of Dividend 0.5 0 2007 2008 2009 Year 2010 2011

EPS Cash Div Stock Div

2007 2.67 0 0

2008 8.13 25 50

2009 5.3 75 0

2010 3.05 90 0

20111 4.89 75 150