Dividend Policy

The policy a company uses to decide how much it will pay out to shareholders in dividends

Dividend Policy
Once a company makes a profit, they must decide on what to do with those profits. They could continue to retain the profits within the company, or they could pay out the profits to the owners of the firm in the form of dividends. they may establish a somewhat permanent dividend policy, which may in turn impact on investors and perceptions of the company in the financial markets.

Types of Dividend Policies

The following are various types of dividend policies (1) Policy of No Immediate Dividend (2) Stable Dividend Policy. (3) Regular Dividend plus Extra Dividend Policy. (4) Irregular Dividend Policy. (5) Regular Stock Dividend Policy. (6) Regular Dividend plus Stock Dividend Policy. (7) Liberal Dividend Policy.

(1) Policy of No Immediate Dividend

Generally, management follows a policy of paying no immediate dividend in the beginning of its life, as it requires funds for growth and expansion.

(2) Stable Dividend Policy.

When a company pays dividend regularly at a fixed rate, and maintains it for a considerably long time even though the profits may fluctuate, it is said to follow regular or stable dividend policy. Thus stable dividend policy means a policy of paying a minimum amount of dividend every year regularly. It raises the prestige of the company in the eyes of the investors.

3) Regular Dividend plus Extra Dividend Policy.

A firm paying regular dividends would continue with its pay out ratio. But when the earnings exceed the normal level, the directors would pay extra dividend in addition to the regular dividend. it would be named 'Extra dividend', as it should not give an impression that the company has enhanced rate of regular dividend.

(4) Irregular Dividend Policy.

When the firm does not pay out fixed dividend regularly, it is irregular dividend policy. It changes from year to year according to changes in earnings level. This policy is followed by firms having unstable earnings, particularly engaged in luxury goods.

5) Regular Stock Dividend Policy.

When a firm pays dividend in the form of shares instead of cash regularly for some years continuously. When a company is short of cash or is facing liquidity crunch, because a large part of its earnings are blocked in high level of receivables or when the company is need of cash for its modernization and expansion program, it follows this policy.

(6) Regular Dividend plus Stock Dividend Policy.

A firm may pay certain amount of dividend in cash and some dividend is paid in the form of shares (stock). This policy is justified when (1) The company wants to maintain its policy of regular dividend and yet (2) It wants to retain some part of its divisible profit with it for expansion. (3) It wants to give benefit of its earnings to shareholders but has not enough liquidity to give full dividend in cash.

(7) Liberal Dividend Policy.

It is a policy of distributing a major part of its earnings to its shareholders as dividend and retains a minimum amount as retained earnings. The ratio of dividend distribution is very large as compared to retained earnings.

DIVIDEND POLICY
TATA STEEL & JINDAL STEEL

WHAT IS A DIVIDEND POLICY

 The amount that a public company will pay out as dividend to its shareholders.  It will also outline when the dividends will be paid out , how much, and how frequent.  It also has an impact on investors and perceptions of the company in the financial markets.

VARIOUS DIVIDEND POLICIES

Generous dividend and bonus policy Fixed dividend policy Erratic dividend policy

TYPES OF DIVIDEND
Regular dividend Interim dividend Stock dividend Scrip dividend Bond dividend Property dividend

FACTORS AFFECTING DIVIDEND POLICY

Stability of earnings Age of corporation Liquidity of funds Need for additional capital Taxation policy Government policy Past dividend rates Time for payment of dividend

TATA STEEL
It was formerly known as TISCO It was founded in 1907 World s 7th largest steel company Consolidated revenue of US$29.33 billion Net profit of US$2.74 billion

JINDAL STEEL
Initially named as orbit strips ltd. Annual turnover of over US $2.1 billion One of the largest steel producers in India with 12 plants in India and 2 in USA. Leading player in steel, power, mining, oil and gas and infrastructure.

DIVIDEND IN %
600 500 400 300 200 100 0 2010 2009 2008 Jindal Steel Tata Steel

Dividend paid
18 16 14 12 10 8 6 4 2 0 2008 2009 2010 TATA JINDAL

EARNING PER SHARE

180 160 140 120 100 80 60 40 20 0 2008 2009 2010 JINDAL TATA

PRICE EARNING RATIO

60 50 40 30 20 10 0 2008 2009 2010 JINDAL TATA

COMMENTS
The 52 week high of Tata is Rs.737 and that of Jindal is Rs.755.25. The 52 week low of Tata is Rs.448.65 and that of Jindal is Rs.572.70. Jindal steel pays better dividend to its shareholders. The earning per share has increased in 2009 and decreased in 2010 for both the companies.