DIVIDEND POLICY

By:By Group 5:
Aayush Kumar
Lewis Francis
Jasneet
SaiVenkat
Ritika Bhalla
DIVIDEND POLICY
MEANING OF DIVIDEND
The term dividend refers to that portion of profit, which is distributed among the
owners/shareholders of the firm.
INTRODUCTION TO DIVIDEND POLICY
The dividend policy of a firm determines what proportion of earnings is paid to shareholders
by way of dividends and what proportion is ploughed back in the firm for reinvestment
purposes. If a firms capital budgeting decision is independent of its dividend policy, a higher
dividend payment will call for a greater dependence on external financing. Thus, the dividend
policy has a bearing on the choice of financing. On the other hand, firms capital budgeting
decision is dependent on its dividend decision; a higher dividend payment will cause
shrinkage of its capital budget and vice versa. In such case, the dividend policy has a bearing
on the capital budgeting decision.
Dividend Policy refers to the explicit or implicit decision of the Board of Directors regarding
the amount of residual earnings (past or present) that should be distributed to the shareholders
of the corporation. This decision is considered a financing decision because the profits of the
corporation are an important source of financing available to the firm.





FACTORS AFFECTING DIVIDEND POLICY
1. OWNERSHIP CONSIDERATIONS- Where ownership is concentrated in few people there are no
problems in identifying ownership interests. However where ownership is decentralised on a wide
spectrum the identification of their interests becomes difficult. Further the influence of stockholders
interests on dividend decision becomes uncertain.
2. FIRM ORIENTED CONSIDERATIONS-Ownership interests alone may not determine
the dividend policy. A firms needs are also an important consideration which includes the
following:
Liquidity, credit sharing and working capital
Needs of funds for immediate and future expansion
Availability of external capital
3. NATURE OF BUSINESS -This is an important determinant of dividend policy of a
company. Companies with unstable earnings adopt dividend policies which are different from
those which have steady earnings. Consumer goods industries usually suffer less from
uncertainties of income and hence pay dividends with greater regularity than the capital
goods industries. Industries with stable income are in a position to formulate consistent
dividend policies. Thus public utilities may be able to establish a relatively fixed dividend
rate.
4.ATTITUDES AND OBJECTIVES OF MANAGEMENT - The attitude of the
management affects the dividend policies of a corporation in another way. The stockholders
who control the management of the company may be interested in empire building. In such a
case company with the objective of expanding the business may retain a larger portion of
profit and declare less dividend to shareholders.
5.COMPOSITION OF SHARE HOLDING-There may be marked variations in dividend
policies on account of the variations in the composition of shareholding. The tax burden on
business corporations is a determining factor. The directors of closely held companies may
take into consideration the effect of dividend upon the tax position of their shareholders. On
the other hand the shareholders of the large and widely held company may be interested in
high dividend payouts.
6. INVESTMNET OPPORTUNITIES-Many companies retain the earnings to facilitate
planned expansion. Companies with low credit ratings may feel that they may not be able to
sell their securities for rising necessary finance they would need for future expansion. So,
they adopt a policy for retaining large portion of earnings.
7. DESIRE FOR FINANCIAL SOLVENCY AND LIQUIDITY-Companies may desire to
build up reserves by retaining their earnings which enable them to weather deficit years or the
downswings cycle. Cash credit limits, working capital needs, capital expenditure
commitments, repayment of long-term debts etc. influence the dividend division.
8. REGULARITY-A company may decide about dividends on the basis of its current
earnings which according to its thinking may provide the best index of what a company can
pay, even though large variations in earnings and consequently in dividends may be observed
from year to year. They may use past profits to pay dividends as more important than
anything else. Regularly in dividends cultivates an investment attitude rather than a
speculative one toward the shares of a company.
9.RESTICTIONS BY FINANCIAL INSTITUTIONS-
Sometimes financial institutins which grant long-term loans to corporations put a clause
restricting payment till the loans or a substancial part of it is repaid.
10.INFALTION-Inflation is also a factor which may effect a firms dividend decision. In
period of inflation, funds generated from depreciation may not be adequate to replace worn
out equipment. Under these circumstances, the firm has to depend upon retained earnings of
funds to make up for the shortfall. This is particular relevance if the assets have to be
replaced in near future. Consequently , the dividend payments ratio will tend to be low.
11.OTHER FACTORS-
Age of the company has effect on the dividend decision. Established companies often
find it easier to distribute higher earnings without causing an adverse corporation
which has yet to establish itself.
The demand for capital expenditure, money supply, etc., undergo great oscillations
during the different stages of a business cycle. As a result, dividend policies may
fluctuate from time to time.
In many instances, dividend policies result from tradition, ignorance and indifference
rather than from considered judgement. An industry or a company may have
established some satisfactory standard for the payment of dividends; and this
standard becomes a convention or custom for that industry or company.




GOALS OF DIVIDNED POLICY
Dividend policy should be analysed in terms of its effect on the value of the company
Investment by the company in new profitable opportunities creates value and when a
company foregoes an attractive investment, shareholders incur an opportunity loss
Dividend, investment and financing decisions are interdependent and there is often a
trade-off
Dividend decisions should not be treated as a short-run residual decision
A workable compromise is to treat dividends as a long-run residual to avoid
undesirable variations in payout. This needs financial planning over a fairly long time
horizon
Dividend policy should be communicated clearly to investors who may then take
their decisions in terms of their own preferences and needs
Erratic and frequent changes in dividends should be avoided

TYPES OF DIVIDEND POLICY
1. ON THE BASIS OF COMPANYS GENERAL PERSPECTIVE
Whether dividend should be paid right from the initial year of operations, i.e., regular
dividends .
Whether equal amount or fixed percentage of dividend be paid every year, irrespective of
the quantum of earnings as in case of preference shares, i.e., stable dividends.
Whether a fixed percentage of total earnings be paid as dividend which would mean
varying amount of dividend per share every year, depending on the quantum of earnings
and number of ordinary shares in the year, i.e., a fixed payout ratio.
Whether the dividend be paid in cash or in the form of shares of other companies held by
it or by converting (accumulated) retained earnings into bonus shares, i.e., property
dividend or bonus share dividend

2. ON THE BASIS OF A RESEARCH STUDY
On the basis of the nature of industry such as whether industry belongs to electrical,
chemicals, fertilisers, FMCS, automobiles, pharmaceuticals, textiles, a research study
classified dividend policy into three types. They are:
Generous dividend policy
More or less fixed dividend policy
Erratic dividend policy

3. ON THE BASIS OF STABILITY OF DIVIDEND
Stable dividend per share
Stable percentage of net earnings
Stable rupee dividend plus extra dividend
Dividends as a fixed percentage of market value



FORMS OF DIVIDEND
1. Scrip Dividend
2. Bond Dividend
3. Property Dividend
4. Cash Dividend
5. Debenture Dividend
6. Bonus share or Stock dividends
Cash dividend is a payment made by a company out of its earnings to investors in the form of
cash. This transfers economic value from the company to the shareholder Share bonus is an
increase in the amount of shares of a company with the new shares being given to
shareholders instead of the company using the money for operations.
Share bonus is an increase in the amount of shares of a company with the new shares being
given to shareholders. The additional shares are allotted to the existing shareholders without
receiving any additional payment from them, it is known as issue of bonus shares. Bonus
shares are allotted by capitalizing the reserves and surplus. Issue of bonus shares results in the
conversion of the company's profits into share capital. Therefore it is termed as capitalization
of company's profits. Since such shares are issued to the equity shareholders in proportion to
their holdings of equity share capital of the company, a shareholder continues to retain his /
her proportionate ownership of the company. Issue of bonus shares does not affect the total
capital structure of the company. It is simply a capitalization of that portion of shareholders'
equity which is represented by reserves and surpluses. It also does not affect the total
earnings of the shareholders. Issue of Bonus Shares is more or less a financial gimmick
without any real impact on the wealth of the shareholders. Still firms issue bonus shares and
shareholders look forward to issue of bonus shares.

REASONS FOR ISSUING BONUS SHARES
The bonus issue tends to bring the market price per share within a more reasonable
range.
It increases the number of outstanding shares. This promotes more active trading.
The nominal rate of dividend tends to decline. This may dispel the impression of
profiteering.
Share capital base increases and the company may achieve a more spectacular size in
the eyes of the investing company.
Shareholders regard a bonus issue as a strong indication that the prospects of the
company have brightened and they can reasonably look for an increase in total
dividend.
It improves the prospects of raising additional funds.

ADVANTAGES OF ISSUE OF BONUS SHARES TO THE COMPANY
1. Conservation of Cash: Issue of bonus shares does not involve cash outflow. The
company can retain earnings as well as satisfy the desire of the shareholders to receive
dividend.
2. Keeps the EPS at a reasonable level: A company having high EPS may face
problems both from employees and consumers. Employees may feel that they are
underpaid. Consumers may feel that they are being charged too high for the
company's products. Issue of bonus shares increases the number of shares and reduces
the earning per share.
3. Increases the marketability of company's shares: Issue of bonus shares reduces the
market price per share. The price of the share may come within the reach of ordinary
investors. This increases the marketability of shares.
4. Enhances prestige of the company: By issuing bonus shares, the company
increases its credit standing and its borrowing capacity. It reflects financial strength of
the company.
5. It helps in financing its projects: By issuing bonus shares, the expansion and
modernization programmes of a company can be easily financed. The company need
not depend on outside agencies for finances.
6. Retention of managerial control: Any new issue of shares has a danger of dilution
of managerial control over the company.

ADVANTAGES TO THE SHAREHOLDERS
Tax benefits: When a shareholder receives dividend in cash, it adds to his total
income and is taxed at usual income tax rates. From this point of view the bonus
shares increase the wealth of shareholders. In case the shareholder requires cash he
can sell his additional shares.
Indication of higher future profits: Issue of bonus shares is generally an indication
of higher future profits. This is because a company declares a bonus issue only when
its earnings are expected to increase.
Increase in future dividend: The shareholder will get more dividends in the future
even if the company continues to offer existing cash dividend per share.
High psychological value: Issue of bonus shares is usually perceived positively by
the market. This tends to create greater demand for the company's shares. In fact,
always the share prices rise at the declaration of bonus shares.



LIMITATIONS OF BONUS ISSUES DISADVANTAGES FOR THE COMPANY
Issue of bonus shares leads to an increase in the capitalization of the company. The
increased capitalization can be justified only if there is increase in the earning
capacity of the company.
After the issue of the bonus shares the shareholders expect the existing rate of
dividend per share to continue. It is really a challenging task for the company to retain
the existing rate of dividend per share.
Issue of bonus shares prevents new investors from becoming the shareholders of the
company (no doubt they can buy the shares in the secondary market).

DISADVANTAGES TO THE SHAREHOLDERS
Some shareholders may prefer cash dividend to stock dividend, such shareholders
may feel disappointed (no doubt they can very well sell their bonus shares and get
their money).

SHARE SPLIT
A share split is a method to increase the number of outstanding through a proportional
reduction in the par value of the share. A share split affects only the par value and the total
number of outstanding shares, the shareholders total funds remains unaltered.
The primary motives to make shares seem more affordable to small investors even though the
underlying value of the company has not changed. A stock split can also result in a stock
price increase following the decrease immediately after the split. Since many small investors
think the stock is now more affordable and buy the stock, they end up boosting demand and
drive up prices. Another reason for the price increase is that a stock split provides a signal to
the market that the companys share price has been increasing and people assume this growth
will continue in the future, and again, lift demand and prices. Another version of a stock split
is the reverse split. This procedure is typically used by companies with low share prices that
would like to increase these prices to either gain more respectability in the market or to
prevent the company from being delisted.

REVERSE SPLIT
Under the situation of falling price of a companys share the company may want to reduce the
number of outstanding shares to prop up the market price per share. The reduction of the
number of outstanding shares by increasing the per share value is known as reverse split.

STOCK REPURCHASE
Its actually the repurchase of its own share by a company.
To return surplus cash to shareholders as an alternative to a higher dividend payment or
investing the surplus cash in existing or new operations. Adjust or change the companys
capital structure quickly
To increase earnings per share and net asset value per share
To improve the various performance parameters like EPS, DPS, operating cash flow per
share, etc.
1. Increase in value of the firm because managers are signalling that the shares are
undervalued (otherwise they might not want to buy them)
2. Increase in value if they use debt to repurchase shares because of the tax benefits of
debt
3. Increase in value because investors pay taxes on capital gains and higher taxes on
ordinary income if they receive dividends.
4. Increase in value of stocks because there is a transfer of wealth from bondholders to
stockholders

EFFECTS
Effects on the Company Shareholding Pattern Changes Improvement in the financial ratios of
the company Effects on the Shareholder Tax Benefits Higher Share Price.

DIVIDEND POLICY OF 5 IT COMPANIES

1.TATA CONSULTANCY SERVICES (TCS)

Dividend Summary
For the year ending March 2013, Tata Consultancy Services has declared an equity dividend
of 2200.00% amounting to Rs 22 per share. At the current share price of Rs 2000.85 this
results in a dividend yield of 1.1%.

The company has a good dividend track report and has consistently declared dividends for the
last 5 years.
* As per the Profit & Loss account
Dividend Declared
Announcement
Date
Effective
Date
Dividend
Type
Dividend
(%)
Remarks
15-10-13 25-10-13 Interim 400.00
Rs.4.0000 per share(400%)
Second Interim Dividend
18-07-13 29-07-13 Interim 400.00
Rs.4.0000 per share(400%)
Interim Dividend
17-04-13 06-06-13 Final 1,300.00
Rs.13.0000 per share(1300%)
Final Dividend
14-01-13 23-01-13 Interim 300.00
Rs.3.0000 per share(300%)
Third Interim Dividend
19-10-12 31-10-12 Interim 300.00
Rs.3.00 per share (300%)
Second Interim Dividend
12-07-12 23-07-12 Interim 300.00
Rs.3.00 per share(300%)
Interim Dividend
23-04-12 07-06-12 Final 1,600.00
Rs. 8/- per share (800%)
Final Dividend &
Rs. 8/- per share (800%)
Special Dividend
17-01-12 25-01-12 Interim 300.00 Third Interim Dividend
17-10-11 25-10-11 Interim 300.00 Second Interim Dividend

14-07-11

28-07-11

Interim

300.00
-
21-04-11 08-06-11 Final 800.00 Rs.8.00 per share(800%)
2. WIPRO
Dividend Summary
Final Dividend
17-01-11 27-01-11 Interim 200.00 Third Interim Dividend
21-10-10 01-11-10 Interim 200.00 Second Interim Dividend
15-07-10 29-07-10 Interim 200.00 -
19-04-10 15-06-10 Final 1,400.00
Rs.10.00 per share(1000%)
Dividend & Rs.4.00 per share
(400%)Final Dividend
15-01-10 27-01-10 Interim 200.00 Third Interim Dividend
20-10-09 28-10-09 Interim 200.00 Second Interim Dividend
20-07-09 27-07-09 Interim 200.00 -
21-04-09 16-06-09 Final 500.00 & Bonus Issue
07-01-09 28-01-09 Interim 300.00 Third Interim Dividend
17-07-08 29-10-08 Interim 300.00 Second Interim Dividend
14-10-08 29-10-08 Interim 300.00 Second Interim Dividend
08-07-08 31-07-08 Interim 300.00 -
21-04-08 18-06-08 Final 500.00 -
08-01-08 23-01-08 Interim 300.00 Third Interim Dividend
For the year ending March 2013, Wipro has declared an equity dividend of 350.00%
amounting to Rs 7 per share. At the current share price of Rs 477.95 this results in a dividend
yield of 1.46%.

The company has a good dividend track report and has consistently declared dividends for the
last 5 years.
* As per the Profit & Loss account
Dividend Declared
Announcement
Date
Effective
Date
Dividend
Type
Dividend
(%)
Remarks
19-04-13 27-06-13 Final 250.00
Rs.5.0000 per share(250%)
Final Dividend
15-01-13 23-01-13 Interim 100.00
Rs.2.0000 per share(100%)
Interim Dividend
25-04-12 28-06-12 Final 200.00 -
10-01-12 24-01-12 Interim 100.00 -
27-04-11 29-06-11 Final 200.00 -
17-01-11 27-01-11 Interim 100.00 -
23-04-10 15-06-10 Final 300.00
(Revised from BC
01/07/2010 to 22/07/2010)
22-04-09 29-06-09 Final 200.00 -
21-04-08 27-06-08 Final 200.00 AGM


3. INFOSYS
Dividend Summary
For the year ending March 2013, Infosys has declared an equity dividend of 840.00%
amounting to Rs 42 per share. At the current share price of Rs 3347.60 this results in a
dividend yield of 1.25%.

The company has a good dividend track report and has consistently declared dividends for the
last 5 years.
* As per the Profit & Loss account
Dividend Declared
Announcement
Date
Effective
Date
Dividend
Type
Dividend
(%)
Remarks
26-09-13 17-10-13 Interim 400.00
Rs.20.0000 per share(400%)
Interim Dividend
12-04-13 30-05-13 Final 540.00
Rs.27.0000 per share(540%)
Final Dividend
24-09-12 18-10-12 Interim 300.00
Rs.15.0000 per share(300%)
Interim Dividend
13-04-12 24-05-12 Final 640.00
Rs. 22.00 per share (440%)
Final Dividend & Rs.10.00
per share (200%)
Special Dividend
22-09-11 20-10-11 Interim 300.00 -
15-04-11 26-05-11 Final 400.00 -
29-09-10 21-10-10 Interim 800.00
Rs.10.00 per share(200%)
Interim Dividend &
Rs.30.00 per share(600%)
Special Dividend.
13-04-10 26-05-10 Final 300.00 -
22-09-09 15-10-09 Interim 200.00 -
15-04-09 04-06-09 Final 270.00 -
25-09-08 16-10-08 Interim 200.00 -
15-04-08 29-05-08 Final 545.00
(Final Dividend 145% +
Special Dividend 400%)


4. HCL TECHNOLOGIES
Dividend Summary
For the year ending June 2012, HCL Technologies has declared an equity dividend of
600.00% amounting to Rs 12 per share. At the current share price of Rs 1050.25 this results
in a dividend yield of 1.14%.

HCL Technologies had last declared a dividend of 600.00% for the year ending June 2012.
* As per the Profit & Loss account
Dividend Declared
Announcement
Date
Effective
Date
Dividend
Type
Dividend
(%)
Remarks
04-10-13 22-10-13 Interim 100.00
Rs.2.0000 per share(100%)
Interim Dividend
05-04-13 22-04-13 Interim 100.00
Rs.2.0000 per share(100%)
Third Interim Dividend
17-01-13 21-01-13 Interim 100.00
Rs.2.0000 per share(100%)
Second Interim Dividend
25-07-12 19-10-12 Interim 300.00
Rs.4.0000 per share(200%)
Final Dividend & Rs.2.0000
per share(100%)
Interim Dividend
04-04-12 23-04-12 Interim 100.00 Third Interim Dividend
04-01-12 20-01-12 Interim 100.00 Second Interim Dividend
27-07-11 21-10-11 Final 300.00
Rs.2.00 per share(100%)
Final Dividend & Rs.4.00 per
share(200%)Interim
Dividend (incl. Rs. 2/-
One Time Special Milestone
Dividend)
08-04-11 25-04-11 Interim 100.00 Third Interim Dividend
07-01-11 24-01-11 Interim 100.00 Second Interim Dividend
29-07-10 22-10-10 Final 125.00
Rs.1.00 per share(50%)
Final Dividend + Rs.1.50 per
share(75%)Interim Dividend.
09-04-10 26-04-10 Interim 50.00 -
12-01-10 29-01-10 Interim 50.00 Second Interim Dividend
25-08-09 02-12-09 Final 50.00 -
15-10-09 30-10-09 Interim 50.00 -
13-04-09 24-04-09 Interim 50.00 Third Interim Dividend
13-01-09 28-01-09 Interim 100.00 Second Interim Dividend
01-08-08 22-10-08 Final 300.00
150% Final Dividend &
150% Interim Dividend
(Revised)
01-04-08 21-04-08 Interim 100.00 Third Interim Dividend
07-01-08 23-01-08 Interim 100.00 Second Interim Dividend
31-07-13 - Final 300.00
Rs.6.0000 per share(300%)
Final Dividend


5. LARSEN & TOUBRO INFOTECH.
Dividend Summary
For the year ending March 2013, Larsen and Toubro has declared an equity dividend of
925.00% amounting to Rs 18.5 per share. At the current share price of Rs 964.15 this results
in a dividend yield of 1.92%.

The company has a good dividend track report and has consistently declared dividends for the
last 5 years.
* As per the Profit & Loss account
Dividend Declared
Announcement
Date
Effective
Date
Dividend
Type
Dividend
(%)
Remarks
22-05-13 13-08-13 Final 616.50 Rs.18.5000 per share(925%
)Dividend (Final dividend of
Rs.18.50 per share is
pre-bonus dividend).
Post bonus Dividend works
out to Rs.12.33 per share.
(Dividend per share taken as
Rs. 12.33 per share (616.5%)
on the Post bonus capital)
14-05-12 14-08-12 Final 825.00
Rs.16.50 per share(825%)
Dividend
19-05-11 17-08-11 Final 725.00 -
17-05-10 17-08-10 Final 625.00 -
28-05-09 18-08-09 Final 525.00 -
29-05-08 20-08-08 Final 750.00 AGM