Dividend Policy - 1

An Group No:07
Assignment
On
“Identify and Analyse the major dividend paying PSU companies and
comment upon their dividend policies”
SUBJECT: CORPORATE FINANCE

MBA SEM-2 (2018-2019)
CLASS: A1
S. R. LUTHRA INSTITUTE OF MANAGEMENT

GUJARAT TECHNOLOGICAL UNIVERSITY
SUBMISSION DATE: 8 April 2019

ROLL NO: 01 AND 60
GROUP NO: 07
SUBMMITED TO: SUBMMITED BY:

MS. JAYSHREE ABHISHEK MEHTA 01
SIDDHPURIA BHAKTI MEHTA 60
Dividend Policy
Meaning:
Dividend policy refers to the policy that the management formulates in regard to earnings for distribution as
dividend among shareholders.
It is not merely concerned with dividends to be paid in one year, but is concerned with the continuous course
of action to be followed over a period of several years.
A company's dividend policy since they can sell a portion of their portfolio of equities if they want cash. This
evidence is called the "Dividend Irrelevance Theory ".
Factors Affecting Dividend Policy
1. Ownership Structure
A company with a higher promoter’ holdings will prefer a low dividend payout as paying out
dividends may cause a decline in the value of the stock. Whereas, a high institutional ownership will
favor a high dividend payout as it helps them to increase the control over the management.
2. Age of corporation
Newly formed companies will have to retain major part of their earnings for further growth and
expansion. Thus, they have to follow a conservative policy unlike established companies, which can
pay higher dividends from their reserves.
3. The extent of share distribution

A company with a large number of shareholders will have a difficult time in getting them to agree to a
conservative policy. On the other hand, a closely held company has more chances of succeeding to
finalize conservative dividend payouts.
4. Different shareholders’ expectations

Another factor that impacts the policy is the diversity in the type of shareholders a company has. A
different group of shareholders will have different expectations. A retired shareholder will have a
different requirement vis-a-vis a wealthy investor. The company needs to clearly understand the
different expectations and formulate a successful dividend policy.
2
5. Leverage
A company having more debt in their financial structure and consequently, more interest payments may to
decide for a low dividend payout, so as to increase their net worth.
6. Future financial requirements / reinvestment opportunity

Dividend payout will also depend on the future requirements for the additional capital. A company having
profitable investment opportunities is justified in retaining the earnings. However, a company with no
capital requirements should opt for a higher dividend.
Dividend Policies involve the decisions, whether-
 To retain earnings for capital investment and other purposes; or
 To distribute earnings in the form of dividend among shareholders; or
 To retain some earning and to distribute remaining earnings to shareholders.
Types of dividend policy
1. Stable Dividend Policy
Stable dividend policy is the easiest and most commonly used. The goal of the policy is steady and
predictable dividend payouts each year, which is what most investors seek. Whether earnings are up or
down, investors receive a dividend.
2. Constant Dividend Policy
The primary drawback of the stable dividend policy is that investors may not see a dividend increase
in boom years. Under the constant dividend policy, a company pays a percentage of its earnings as
dividends every year. In this way, investors experience the full volatility of company earnings.
3
3. Residual Dividend Policy
Residual dividend policy is also highly volatile, but some investors see it as the only acceptable
dividend policy. With a residual dividend policy, the company pays out what dividends remain after
the company has paid for capital expenditures and working capital.
Forms of Dividend
1. Cash dividend.
The cash dividend is by far the most common of the dividend types used. On the date of
declaration, the board of directors resolves to pay a certain dividend amount in cash to
those investors holding the company's stock on a specific date.
2. Stock dividend
A stock dividend is the issuance by a corporation of its common stock to its

common shareholders without any consideration. For example, when a company declares a 15%
stock dividend, this means that every shareholder receives an additional 15 shares for every 100
shares he already owns.
3. Property Dividend
A property dividend is a dividend paid to investors with assets other than cash. For example, a
company could send its own products to investors as a dividend.
4. Scrip dividend
A scrip dividend is new shares of an issuer's stock that are issued to shareholders instead of
a dividend. Scrip dividends may be used when issuers have too little cash available to issue a cash
dividend, but still want to pay their shareholders in some manner.
Scrip dividends may also be offered to shareholders as an alternative to a cash dividend, so that
their dividend payments are automatically rolled into more shares.
4
5. Liquidating dividend
A liquidating dividend is a distribution of cash or other assets to shareholders, with the intent of
shutting down the business.
This dividend is paid out after all creditor and lender obligations have been settled, so the dividend
payout should be one of the last actions taken before the business is closed.
Types of Dividend:
Special Dividend
A special dividend, also known as an extra dividend, is a one-time distribution of corporate earnings to
company shareholders.A special dividend is larger compared to normal dividends paid out by the
company.
Final Dividend
A dividend calculated at the end of a financial year based on the company's annual profits.
The final dividend is declared at a company's Annual General Meeting (AGM) for a given fiscal year.
Interim Dividend
An interim dividend is a distribution to shareholders that has been both declared and paid before a
company has determined its full-year earnings.
An interim dividend is a dividend payment made before a company's annual general meeting (AGM)
and the release of final financial statements.
5
L& T Ltd.
 Larsen & Toubro Limited, commonly known as L&T, is one of the largest
Indian multi-national firms and leading construction company in India headquartered
in Mumbai, Maharashtra, India.
 It was founded by two Danish engineers taking refuge in India. The company has
business interests in engineering, construction, manufacturing goods, information
technology, and financial services.
Year EPS (Rs.) DPS (Rs.) ROE (%) Div Payout Share Price
(%) (Market)
2014 59.36 14.25 16.32 24.04 997.72
2015 54.46 16.25 13.63 29.87 850.48
2016 57.07 18.25 13.04 32.00 899.64
2017 39.00 14.00 11.89 0.00 1256.95
2018 38.46 16.00 10.99 0.00 1412.45
70
60
50
40
DPS
30 EPS
20
10
0
2014 2015 2016 2017 2018
Interpretation:
EPS shows growth but at the end of the year 2018, it decreases and DPS shows steady growth
without significant increase. This reflected in the zero payout of the firm and so the reserves
with company are more and market price increases at the year 2018.
7
Dividend Declared
Announcement Effective Dividend Dividend Remarks

Date Date Type (%)
28-05-18 14-08-18 Final 800.00 Rs.16.00 per share(800%)Dividend
(Adjusted for Bonus)
25-05-16 18-08-16 Final 912.50 Rs.18.25 per share(912.5%)Dividend
Dividend Summary
 For the year ending March 2018, Larsen & Toubro has declared an equity dividend of
800.00% amounting to Rs 16 per share. At the current share price of Rs 1412.20 this
results in a dividend yield of 1.13%.
 The company has a good dividend track report and has consistently declared
dividends for the last 5 years.
8
Infosys Ltd.
 Infosys Limited is an Indian multinational corporation that provides business

consulting, information technology and outsourcingservices. It has its headquarters
in Bengaluru, Karnataka, India.
 Infosys is the second-largest Indian IT company by 2017 revenues and 596th largest
public company in the world based on revenue. On September 28, 2018, its market
capitalisation was $44.32 billion.
9
Year EPS (Rs.) DPS (Rs.) ROE (%) Dividend Share Price
Payout (%) (Market)
2014 178.39 63.00 24.21 35.49 492.80
2015 105.91 59.50 25.30 42.01 552.28
2016 55.26 24.25 20.78 43.88 505.35
2017 60.16 25.75 20.31 50.51 519.65
2018 71.28 43.50 25.44 46.42 759.85
200
180
160
140
120
100 DPS
EPS
80
60
40
20
0
2014 2015 2016 2017 2018
Interpretation:
EPS decreases but at the end of the year it increases and DPS decreases but at the end of the
year 2018, it increases and Dividend payout ratio is also less and so market share price is
maximum by 759.85 Rs.
10
Dividend Declared

Date Date Type (%)
11-01-19 24-01-19 Special 80.00 Rs.43.500 per share(870%)Special

Dividend
16-10-18 25-10-18 Interim 140.00 Rs.7.0000 per share(140%)Interim
Dividend
12-04-18 14-06-18 Final 410.00 Rs.20.5000 per share(410%)Final
Dividend
13-04-18 14-06-18 Special 200.00 Rs.10.0000 per share(200%)Special
Dividend
Dividend & Buy Back of shares
Dividend.
Dividend
Dividend
Dividend
Dividend (equivalent to
Rs. 14.75/- per share
after 1:1 bonus issue)
Dividend
Dividend
Dividend Summary
 For the year ending March 2018, Infosys has declared an equity dividend of 870.00%
amounting to Rs 43.5 per share. At the current share price of Rs 753.30 this results in
a dividend yield of 5.77%.
11
HDFC Bank

HDFC Bank Limited (Housing Development Finance Corporation) is
an Indian banking and financial services company headquartered
in Mumbai, Maharashtra. It has 88,253 permanent employees as of 31 March
2018 and has a presence in Bahrain, Hong Kong and Dubai.

HDFC Bank is India’s largest private sector lender by assets. It is the largest bank in
India by market capitalization as of February 2016. It was ranked 69th in 2016
BrandZ Top 100 Most Valuable Global Brands.
12
Year EPS (Rs.) DPS(Rs.) ROE Share Price
(Market)
2014 35.47 13 16.45 952.00
2015 42.15 11 16.26 1082.75
2016 48.85 9.5 16.91 1204.2
2017 57.18 8 16.47 1873.55
2018 67.76 6.85 19.5 2122.25
80
70
60
50
40 DPS
EPS
30
20
10
0
2014 2015 2016 2017 2018
Interpretation
As you can see EPS is increasing every year and DPS is decreasing every year, so it indicates
that retention is high and growth is also high of the company as dividend is paid less and
market share price increases at the end of the year 2018.
13
Dividend Declared

Date Date Type (%)
Dividend Summary
 For the year ending March 2018, HDFC Bank has declared an equity dividend of
650.00% amounting to Rs 13 per share. At the current share price of Rs 2292.75 this
results in a dividend yield of 0.57%.
14
TVS Motor Company
 TVS Motor Company is a multinational motorcycle company headquartered

at Chennai, India. It is the third largest motorcycle company in India with a revenue
of over 15,000 crore (US$2.1 billion) in 2017-18.
 The company has an annual sales of 3 million units and an annual capacity of over 4
million vehicles. TVS Motor Company is also the 2nd largest exporter in India with
exports to over 60 Countries.
15
Year EPS (Rs.) DPS (Rs.) ROE (%) Dividend Share Price
Payout (%) (Market)
2014 5.51 1.4 18.48 25.42 268.5
2015 7.32 1.9 21.14 25.95 269.65
2016 10.3 2.5 24.98 35.44 360.65
2017 11.75 2.5 23.17 21.28 771.3
2018 13.95 3.3 23 23.17 571.2
16
14
12
10
8 DPS
EPS
6
0
2014 2015 2016 2017 2018
Interpretation
So as you can see EPS is increasing every year and DPS is also increasing every year, ROE is
decreasing after 2016, share price is also increasing till 2017 and we get to know that as
dividend is paid more at the end of the year so share price has decreased in 2018.
16
Dividend Declared

Date Date Type (%)
05-03-19 18-03-19 Interim 140.00 Rs.1.4000 per share
(140%)Second Interim Dividend
(210%)Interim Dividend
(125%)Interim Dividend.
03-03-16 17-03-16 Interim 150.00 Rs.1.5000 per share (150%)
Second Interim Dividend
Dividend Summary
 For the year ending March 2018, TVS Motor Company has declared an equity
dividend of 330.00% amounting to Rs 3.3 per share. At the current share price of Rs
485.10 this results in a dividend yield of 0.68%.
17

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An Group No:07

SUBJECT: CORPORATE FINANCE

S. R. LUTHRA INSTITUTE OF MANAGEMENT

SUBMISSION DATE: 8 April 2019

SUBMMITED TO: SUBMMITED BY:

Factors Affecting Dividend Policy

3. The extent of share distribution

4. Different shareholders’ expectations

6. Future financial requirements / reinvestment opportunity

Dividend Policies involve the decisions, whether-

 To retain earnings for capital investment and other purposes; or

 To distribute earnings in the form of dividend among shareholders; or

 To retain some earning and to distribute remaining earnings to shareholders.

Types of dividend policy

1. Stable Dividend Policy

2. Constant Dividend Policy

A stock dividend is the issuance by a corporation of its common stock to its

Announcement Effective Dividend Dividend Remarks

 Infosys Limited is an Indian multinational corporation that provides business

Announcement Effective Dividend Dividend Remarks

11-01-19 24-01-19 Special 80.00 Rs.43.500 per share(870%)Special

Announcement Effective Dividend Dividend Remarks

23-04-18 31-05-18 Final 650.00 Rs.13.0000 per share(650%)Dividend

24-04-17 29-06-17 Final 550.00 Rs.11.0000 per share(550%)Dividend

22-04-16 29-06-16 Final 475.00 Rs.9.5000 per share(475%)Dividend

23-04-15 02-07-15 Final 400.00 Rs.8.0000 per share(400%)Dividend

22-04-14 05-06-14 Final 342.50 Rs.6.8500 per share(342.5%)Dividend

 TVS Motor Company is a multinational motorcycle company headquartered

Announcement Effective Dividend Dividend Remarks

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