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Dividend stability in Cement industry of Pakistan

Topic: Dividend stability in Cement industry of Pakistan


Group Members:
Zaeem Wajahait Iqbal
Bilal Jamil

5256/FMS/MBA/F11
5267/FMS/MBA/F11

Dividend stability in Cement industry of Pakistan

Chapter 1
Introduction of Dividend:
Dividend is the amount which firm or company makes payment to their
shareholders. Company pays dividend to its shareholders when its operations go
into profit after deducting their expenses. Mostly companies divide its profit into
two parts, some part of Profit Company distribute it among the shareholders as
dividend and some part of profit reinvested in companys project.
Mostly companies pay fixed amount of dividend to its shareholders according to
numbers of shares they hold. Companies use dividend as asset not expense
because it attracts the shareholders. Companies mostly fix the date of issuance of
dividends but some time company issues dividend during the year.
Company pays dividend to its shareholders through different ways like cash
dividend, stock dividend and bonus shares but cash dividend mostly used by
company for payment. Company pays reasonable amount of dividend to
shareholder if company is paying high dividend in recent year, due to unexpected
loss may affect dividend payment policy of company and company unable to pay
dividend at previous rate then company has to reduce the amount of dividend. It
will give negative signal in market.
Mostly Management of companies pay low amount of dividend to avoid this
problem. There are shareholders have two types of motives like to get dividend or
get capital gain.
Introduction of Dividend Stability:
Profit generated by company does not remain same all the time. It may changes
over period of time due many reasons. From investors point of view they need

Dividend stability in Cement industry of Pakistan

dividend on regular basis or profit on their investment. For satisfying the


shareholders company need to make stable dividend policy.
Some time company may go into loss and company is unable to pay dividend to
its shareholders. It gives negative signal in market and it may affect financial
performance and shares prices of company. For creating Goodwill among the
shareholders and potential investors company need to establish stable dividend
policy.
In our project we will check dividend stability in cement sector of Pakistan
weather in this industry companies maintain stability in their dividend or not.

Introduction of Cement sectors:


Cement industry of Pakistan is considered as most important industry because its
growth rate is high as compared with other industries. Both domestically and
International demand for Pakistani cement is increasing day by day. Following
companies are listed at stock exchange
1. Attock Cement
2. Cherat Cement
3. D.G.K Cement
4. Dadabhoy Cement
5. Dondot Cement
6. Dewan Cement
7. Fauji Cement
8. Fecto Cement
9. Flying Cement
10. Gharibwal Cement
11. Kohat Cement
12. Lucky Cement
13. Maple Cement
14. Pioneer Cement

Dividend stability in Cement industry of Pakistan

For analysis of our project we have selected five companies which are actively
traded in stock exchange and we will check dividend stability of these companies.
Following are selected companies.
1.
2.
3.
4.
5.

Attock Cement
Facto Cement
Lucky Cement.
Cherat Cement
Kohat Cement

Overview of selected companies


1. Attock Cement Pakistan Limited:
Attock Cement Pakistan Limited (ACPL) is group member of Pharaon group of
companies doing operation in Pakistan. It was established in 1981 by the joint
venture of Pak Saudi and its initial investment was 1.5 billion in addition 45
million$ US dollars. ACPL manufacturing plant is located in Lasbela,
Balochistan. ACPL was listed at stock exchange Karachi in 2002.
Attock Cement has different types of products
1)
2)
3)
4)
5)

Falcon Cement.
Ordinary Portland cement.
3) Sulphate Resistant Cement.
4) Block Cement.
5) Portland Blast Furnace Slag Cement.

ACPL sale revenue in 2013 was 11508 Rs Millions and there was 10% increase in
sale revenues as compare with 2012. Gross profit of ACPL was 3535 Rs millions
in 2013 which was more than 26% last year. Earnings per share of company are
21.45 which are 49 more than last year.

Dividend stability in Cement industry of Pakistan

2. Fecto Cement.
Fecto Cement Company is owned by Fecto Group and this group is doing
business in different industry like cement, tractor plan and sugar mill etc. Fecto
cement plant is located near Islamabad in sangjani. It is listed at Karachi stock
exchange. Its performing well in the industry by last two years. In FY 2013 net
sale of company is Rs. 4588 million, gross profit is Rs. 1257 million and earnings
per share is Rs 11.63.

3. Lucky Cement Limited:


Lucky cement limited was founded in 1996 and it is located in Karachi and KPK.
It is largest producers and exporter in the industry. It is listed in all stock
exchanges of Pakistan. It is growing at fast rate. In the year of 2013, companys
net sale was Rs. 37,810 million, profit of company is Rs. 9713 million and
earnings per share 30.04.

4. Cherat Cement:
Cherat cement was established in 1981and it is well know is the Pakistani cement
industry. This company is listed in all three stock exchanges of Pakistan. It is
located in Nowshera, KPK. This company is largest supplier and producers in the
KPK and Punjab. Cherat cement is exporting cement to other countries specially
Afghanistan. In FY 2013 net sale of company is Rs 6294 million, gross profit is
Rs 2186 and earnings per share is Rs 4.54.

5. Kohat Cement
State cement of Pakistan (SCCP) was established in the year of 1984 in Kohat. It
was privatized by Govt through open bidding in 1992.it was listed at stock
exchange in the year of 1994. Kohat cement started export cement in addition
with domestic market. In the year of 2013, Kohat cements net sale was Rs 11,297

Dividend stability in Cement industry of Pakistan

millions, gross profit of company was Rs 4361 million and its earnings per share
was 20.45

Chapter 2
THEORETICAL FRAMEWORK
2.1 Types of Dividend payment:
There different types of dividend payments

Dividend stability in Cement industry of Pakistan

Cash Dividend:
In cash Dividend, payment is made to shareholders in form of cash from current
company profit after its operation. It is most commonly used mode of payments.
On date of declaration of dividend board of directors fixed or settled the amount
of dividend that should be given to shareholders. Shareholders pay taxes on
dividend received. For example if Mr. A hold 1,000 shares of company and
company announced to give dividend Rs.2 per share. Mr. A will receive total
dividend of amount Rs.2, 000.

Stock Dividend:
In stock dividend, company issues stock or share to its common shareholders.
When company is short in availability of cash supply then company decide to
give or issue stocks to the shareholders. Mostly stock dividend is paid by some
big companies.
Company issues stock dividend to common shareholder according to numbers of
shares they owned already. For example if Mr. A hold 1000 shares of company
and company decided to give 5% stock dividend to shareholder. Mr. A will
receive 50 shares extra as stock dividend.
Scrip Dividend:
This type of dividend is paid when company is unable to pay cash dividend.
Company may have not sufficient funds in near future to pay dividend. Company
issues promissory note which gives the guarantee that company will pay dividend
when it will go into profit. This dividend treated as Note payable.

Dividend stability in Cement industry of Pakistan

Property Dividend:
In property dividend, company makes dividend payment to its shareholders in the
form of Assets instead of cash dividend, stock dividend and scrip dividend. For
example company may distribute its products or stock or other companies through
investment. Those shareholders receive property dividend they should pay tax on
fair market value.
Other Dividend:
Other dividend means company sometime distribute financial asset those have a
good market value among the shareholders. For example if a company open its
subsidiary then it will give the share of new subsidiary to parents companys
shareholders.
Bonus share:
Extra shares are given by company to its shareholders without any additional
amount is known as bonus shares. Basic motive of bonus share is to use excess
reserve and it also called capitalization of companys excess reserve and profit.
These bonus shares are issued to existing shareholders according to they owned
already numbers shares of company. It does not affect on capital structure of
company.

Date:
Date has very important role when company pays it to share holders. Date is
approved by board of directors when company would pay dividend. Date has four
types which are discussed blow.
Declaration date:
In general meeting, the companys board of directors decided when would
company is going to announce to pay dividend in this year. Board of directors also
announces the size of dividend or amount of dividend. Company management

Dividend stability in Cement industry of Pakistan

opens account in their books, by mentioning that the amount will be paid to
shareholders.
Record date:
Record date is the date on which name of shareholders who are going to receive
dividend. These are the person who will receive dividend announced on date of
declaration by board of directors. This person is known as holder of record.
Ex Dividend Date:
Ex dividend is the date on which if person sale his shares to another person. After
declaration of dividend seller will receive dividend not new buyer of shares. Here
is very important thing is that this date is before record date.

2.3 types of Dividend policies


There are four types of dividend policies.
Regular Dividend Policy:
In the regular dividend shareholders of company get dividend on regular or
routine bases. Normally in this type of dividend, investors of company belong
from weak section of society and their basic objective is to get dividend or income
on the regular basis. Regular dividend is given by big companies who have long
standing and stable earning. These companies are normally give low rate of
dividend as compared to average earning of company.
Stable Dividend Policy:
Stable dividend policy means that stable amount is given to shareholders as
dividend.
Profit generated by companies after their operations do not remain same in every
year. It may fluctuate due to different circumstances of economy. For the investor

Dividend stability in Cement industry of Pakistan

point of view they need regular dividend they need profit on the regular basis. To
satisfying the shareholders, company needs a regular dividend payment policy.
Sometimes company may suffer losses and unable to pay dividend to its
shareholders. It gives negative signal in market and it may also affect on financial
performance and share prices of company.
For creating Goodwill among the shareholders and potential investors company
should keep balance in paying dividend because company needs regular income
and return. There are three reasons for which companies pay stable dividends.

By paying stable dividend to shareholders companys stock price will


increase.
In present, world is like a global village where information travel within
seconds. In financial sector there may be positive and negative
information about company and this information also affect the
performance that why company gives stable dividend to shareholders to
avoid this problem.
Investor wants more and regular income from their investment, for
attracting the investment company needs to give stable dividends.
Residual Dividend Policy:
Residual dividend policy means that dividend is given to shareholders after
meeting all capital requirement of company and accepting all investment
opportunities. Residual dividend policies normally used by companies those want
relay on the internally generated equity to finance their news projects. Residual
dividend policies maintain balance between debt and equity. There is an important
point is that if equity of company is more than its retained earnings than company
will not pay dividend to its shareholders.

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Dividend stability in Cement industry of Pakistan

Constant dividend payout Ratio Policy:


In Constant dividend payout ratio policy mostly companies fix certain percentage
of profit for the payment of dividend to its shareholders. For example it can be 5%
or 10% of their profile of company.
When company goes into profit then it will dive dividend to its share holders
other view company will not dividend to its shareholders. This policy may be
risky and uncertain. Companies dont use this policy because share price does not
remain stable.

Hybrid Dividend Policy:


Hybrid dividend policy is combination of both residual dividend policy and
constant dividend policy this policy mostly used for long term goal. Normally this
policy is used by the companies those have fluctuation in their earnings. This is
balance policy because it can maintain stability in dividend.

2.4 Impact of dividend stability:


Stable dividend has great impact on the company performance. For creating
goodwill among the existing shareholder and potential investors of company gives
stable dividend to its shareholders. Shareholders want regular dividend for
meeting their financial requirements.
Stable dividend has long term impact on the company in different ways and also
stable dividend useful for companys share price because it has positive impact on
the share price because if company is give stable dividend to its shareholders then
its reduces the speculation in market regarding the share prices of company.

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Dividend stability in Cement industry of Pakistan

Stable dividend policy of company attracts the investors because they want
regular income.

2.5 Factors effecting dividend policy:


Legal requirement
There is guideline available in the company act 1956 regarding the dividend
policy of company. In the law dividend distribution is among the shareholders in
not compulsory. But this act tells the way how to distribute the dividend and there
are three ways of dividend distribution among the shareholders when company
goes into profit.
Liquidity:
Liquidity is very important for making decision regarding dividend distribution.
When company goes into profit or have a extra profit then it will pay dividend to
its shareholders as cash dividend and stock dividend.

Trade cycle:
Economic condition may affect the dividend policy of company. Decision
regarding dividend should be taken according to economic conditions of country.
When company earns profit then it puts profit into the reserve the meeting
requirement in the inflation time. In the during low economic condition company
pays dividend to shareholders and it gives good signal in the market to investors
for attracting investment.
Stable earning:

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Dividend stability in Cement industry of Pakistan

Stable earning has great impact on dividend policy. Those companies have regular
income they adopt stable dividend policy as compared to those companies have
irregular income.
Need of additional capital:
Some companies have good financial position due to large profit because
company uses it profit to meet working capital requirement then they want to
expend their business. Small companies need additional capital to meet both
expenses and payment of dividend to shareholders.
Govt policies:
Govt policies also affects dividend polices of companies because due to change in
industries policy, economic policy may diatribe it. Especially in Pakistan energy
crisis has affected because due to it cost of product increase which leads to
increase price of goods. Company need to keep in the mind all effectors and
policies while making dividend policy.

Chapter 3:
Calculation and interpretation:
Earning per shares:

When a company has more revenue than its expenses after paying taxes, its
called basic earnings of company. It is divided by no. of shares to get earning per
shares.

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Dividend stability in Cement industry of Pakistan

Dividend per Share:

When company goes in profit it announces the amount of dividend for


shareholders of company to know as cash dividend as amount divided by no. of
shares for getting dividend per shares.
Dividend Payout ratio:

It ratio tells us how much portion of profit company distributes among the
shareholders.
Big companies pay large amount of dividend as compared to small companies.
Dividend per Share = Annual Dividend per share / Annual earnings per share
OR
Dividend per Share= dividend /net income
Dividend Yield Ratio:

This ratio shows that the ratio between per share dividend and current price of
share. It tells how much investors can earn from his investment.
Dividend yield ratio = dividend per share/current share price
Dividend Coverage Ratio:

This tells us a company how many times covers dividend from its earning. High
coverage ratio is suitable for company and also very attractive for the new
investment.
Dividend coverage ratio = Earnings per share / dividend per share

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Dividend stability in Cement industry of Pakistan

Analysis:
Attock Cement:
Date

Earnings per

Dividend per

Dividend

Dividend

Coverage

share

share

Payout Ratio

Yield Ratio

Ratio

(%)

(%)

2009

17.24

29

7.14

3.45

2010

11.74

42.59

7.57

2.35

2011

7.9

4.5

55.96

9.18

1.6

2012

16.59

8.5

51.23

9.85

1.95

2013

21.45

13

60.61

9.85

1.65

Interpretation:
Earnings per share of Attack cement company is showing positive trend in FY
2009 and in next two coming FY 2010 and 2011 earnings per share start
decreasing due to financial crisis but earning per share remain positive. Earnings
per share of FY 2012 and 2013 started increase as compared with previous
financial years because of increase in demand of Cement in market due to
increase in construction of building and projects thats why company earnings per
share increased.
Dividend per share of Attock Cement is very excellent as compared with other
companies in the industries. In the FY 2009 and 2010 company give same
dividend per share is Rs 5 but in the FY 2011 Company give Rs 4.5 which
considerable because in the FY 2011 Company performance was not good as
compared with previous years. But Company once again gave more dividend per
share as with previous years in the FYs 2012 and 2013

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Dividend stability in Cement industry of Pakistan

From the FY 2009 to FY 2013 Company started share more profit with its
shareholders 29% to 60.61% which is good for shareholders and attractive form
new investors. Shareholders got very good dividend yield (7.14% to 9.85) from
FY 2009 to 2013. This is very good sign for new investors.
Attock Cement Company covers its dividend cost reduced from 3.45 times to 1.65
times which shows company is performing well.
Kohat Cement:
Date

Earnings per Dividend per


share

2009
2010
2011
2012
2013

0.21
-2.55
0.49
12.9
20.45

Dividend

Dividend Yield

Coverage

share

Payout Ratio

Ratio (%)

Ratio

0
0
0
3.0
4.99

(%)
0
0
0
23
24

0
0
0
0.300000215
0.499999841

0
0
0
4.299996916
4.090001302

Interpretation:
Kohat Cement company earnings per share are Rs. 0.21 in FY 2009 but earnings
per share in FY 2010 become negative due to financial crisis. In the FY 2011 to
FY 2013 earnings per share of company starts increasing (0.49 to 20.45) because
company earned profit. From the year 2011 to 2013 cement demands increased
thats why company showed profit in these years.
Kohat Cement Company has not given dividend to shareholders due financial
crisis and in the financial years of 2012 to 2013 companies gives dividend to its
shareholders Rs 3 and Rs 4.99 respectively. In first three years company did not
gave dividend but in FY 2012 and 2013 company give dividend to shareholders
and company has distributed profit with the ratio of 23% and 24% respectively.

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Dividend stability in Cement industry of Pakistan

Investors have earned profit on their investment in years of 2012 and 2013 with
ratio of 30% and 50% respectively.

Fecto Cement:
Date

2009
2010
2011
2012
2013

Earnings

Dividend per

Dividend

Dividend Yield

Coverage

per share

share

Payout

Ratio (%)

Ratio

6.27
-4.15
1.3
6.91
11.63

0.869054825
--0.591172249
1.407432217

Ratio (%)
0.100
--0.100
0.150

0.0869054825
--0.016421451
0.03703769

--11.68864069
8.263275389

Interpretation:
Fecto cement Earning per share is 6.27 during the year 2009.which is
considerable. With the inverter point of view, investor will prefer to invest Fecto
cement. Fecto cement has o.86 in the FY 2009 dividend per share companys
position is quite good during this year. Fecto cement has Dividend payout ratio is
10% during the 2009 which is remarkable. Dividend yield ratio is 0.086% it
shows that how much investor can earn from his investment. Investor should
consider this sort of investment. Fecto cement has 7.21 coverage ratios. It shows
company is at high coverage. Investor should go for investment in this company
and it is suitable for investment.
Fecto cement has negative earnings in FY of 2010 that show company is going in
the losses. So company does not pay any dividend. From the investor point of
view it is not suitable for investment. In 2011, Fecto cement got profit but

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Dividend stability in Cement industry of Pakistan

company didnt declare the dividend for the shareholders. Being an investor it is
not prefer to invest in Fecto cement this year. Fecto cement earning per share is
6.91 during the year 2012.and shows positive trend in profits. This is
considerable. Being an investor he will prefer to invest Fecto cement. Fecto
cement has 0.59 in 2012, in term of dividend per Share Companys position is
quite good during this year as compare to last year. Fecto cement has Dividend
payout ratio is 10% during the 2009 which is remarkable. Dividend yield ratio is
0.016% and it shows that how much investor can earn from his investment.
Investor should consider this sort of investment. Fecto cement has 11.68 coverage
ratios. It shows company is at high coverage after 2 consecutive years. Investor
should go for investment in this company .it is suitable for investor.
In FY of 2012, Fecto cement got more earnings in 2013. Company pays more
dividends per share and gave more payout ratio. But his coverage ratio is 8.26
which is less as compare to last year but not as much less as ignorable by the
investors. So in 2013, investor would like to invest in Fecto cement

Cherat Cement:
Date

Earnings per

Dividend per

Dividend

Dividend

Coverage

share

share

Payout Ratio

Yield Ratio

Ratio

(%)
--

--

2009

1.67

--

(%)
--

2010

-0.14

--

--

--

--

2011

0.72

--

--

--

--

2012

4.57

2.50

0.44

0.07

2.29

2013

12.81

2.00

0.20

0.04

5.12

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Dividend stability in Cement industry of Pakistan

Interpretation:
In The FY of 2009, Cherat cement has earning per shares is 1.67 which is good
but not enough to pay dividend to the dividend to the shareholders in both FY of
2010 and 2011. Company didnt pay the dividend. Thats why the investor will
not prefer to invest in Cherat cement in these 2009-2011 years Cherat cement got
profit in 2012, and in 2013, Cherat cement has 12.81% which is very high which
is positive indication. Company has high earning per share and it paid high
amount of dividend also which shows that company will show some stability in
his dividend policy in coming years.
Cherat cement has 0.44% dividend payout ratio. But decreases in next year. This
ratio tells us how much portion of profit company distributes among the
shareholders this ratio is quite good for the investor point of view. Cherat cement
has 0.07% dividend yield ratio. It shows that how much investor can earn from his
investment. Investor should consider this sort of investment. Company has
dividend yield ratio is 2.29 which is good for the company. Actually it tells how
much investor can get earning from his investment.
Lucky Cement
Date

2009
2010
2011
2012
2013

Earnings per

Dividend per

Dividend

Dividend

Coverage

share

share

Payout Ratio

Yield Ratio

Ratio

14.21
9.70
12.28
20.97
30.04

(%)
28.51
41.23
32.58
28.61
26.63

4
4
4
6
8

19

(%)
3.81
5.20
5.65
6.44
6.85

3.55
2.43
3.07
3.50
3.75

Dividend stability in Cement industry of Pakistan

Interpretation:
Lucky cement company earnings per share are very good as compared with others
companies in the industry. In the FY of 2009 EPS is Rs 14.21. In coming next two
years FYs 2010 to 2011 ESP are less but remains positive and Lucky cement
earnings per share in FYs of 2011 to 2013 starts in increasing which shows
remarkable growth in earnings. Lucky cement per share is high as compared with
others companies.
Dividend per share of company is Rs 4 for FYs 2009 to 2011 is same which is
very good for investors. In FYs 2012 to 2013 company give more dividends per
share which is Rs 6, Rs 8 respectively. This company is giving more dividends as
compared with other companies in the industry. This company is paying
reasonable amount of profit to its share holder and shareholder are getting good
return or yield on their investment.

Comparison:
There is no stability in Cement sector of Pakistan. There are many reason of not
paying dividends to its shareholder every year because many companies profits
fluctuate in the term of profit and loss. Due recent financial crisis cement sector is
also affected but from FY 2011 to present companies are growing. However there
are some companies Like Lucky Cement, Attack Cement and Maple Cement have
very good growth rate in Sales and Profits of companies. Attack Cement and
Lucky Cement, both of these companies try pay dividend to their share holders.
Luck Cement Company is performing well in the industry and this company tried
to pay every year. From the FY 2009 to 2013 LC paid Rs 4,4,4,6 and 8

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Dividend stability in Cement industry of Pakistan

respectively with stable growth. Which is excellent dividend in industry .Attack


Cement also performs well in the market and its earning and profits are growing
every year and this company paid dividend from FY 2009 to 2013 is Rs 5, 5, 4.5,
8.5 and 13 which is high dividend in market expect FY 2011.
On the other hand DGK Cement and Maple Cement have positive growth rate in
sale and profits but these companies are not paying dividend to its share holders
every year. So payment of dividend is not important for growth of company.
Cement sector of Pakistan started performing well from FY 2012, due some
companies started paying dividend to its shareholder. This is good sign form
Pakistan economy.

Chapter 4:
4.1 Conclusion:
Dividend is very important for every company and it shows performance of
company. It is very important for company to determine impact of stable dividend
and it should be kept in mind while making decision regarding future plan of
company. Stable dividend plays very important role in creating good will of
company among the shareholders by giving positive signal in the market. High
payout ratio shows that company is sharing more profits with shareholders and it

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Dividend stability in Cement industry of Pakistan

indicates that companys earnings are increasing due to this vale of company
share price is increasing.
New investors before investing see all these important things related to company
because all these effecters affect in both short and long term decisions. In the
cement industry Lucky Cement and Attock Cement performance are excellent
these company fulfilling demand of local market and international market. These
companies are paying good and regular dividend to its shareholders
What so ever Stability of dividend is very important for the progress of company
but in this project there rare companies are paying stable dividend to its
shareholders like Lucky Cement and Attock cement. Most of the companies are
not paying dividend to its shareholders only four company paying dividend to
shareholders but not regular except Lucky cement and Attock cement.

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