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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Dividend payout policy

Dividend payout policy

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1Dividend payout policy Empty Dividend payout policy Sat Nov 19, 2011 10:30 am

lokuayya


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
i remember sometimes back govt mentioned about a dividend payout policy for listed companies during a budget proposal.i cant remember exactly the details but as i remember, the directive was to payout 50% of profit as dividend.

is it in force? what happen to that proposal? is there any policy for dividends?

2Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 10:46 am

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Think it was only a request. Not compulsory. So companies still can decide the dividend amounrs

3Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 11:21 am

dindon1

dindon1
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
According to the company Law it is decided by the directors of a company and passed at the general meeting.
But I dont know about the government can change it by a budget proposal.But I guess The company law can be changed by amendment to the legislation.
Given that the recent developments happened in this country This also can be passed as a law in the near future.,Who knows what is lined up next???Highly unpredictable state that we are forced to live in??? Sad

4Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 12:38 pm

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
I personally think companies should not pay 50% as dividends to make share holders happy.. The company should have a future too.. If they can turn the money to an investment, they can expect more reveue in another 1-2 years time..
Look at RENUKA CITY HOTELS, they used money from their investment portfolio to fund the hotel refurbishments + a bank OD, so no need to burden the share holders..
U can exect best use of money when the management is far sighted..

I fear if any law points to be added to this dividend policies by the govt that could ruin the companies in long run..

5Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 12:44 pm

bakapandithaya

bakapandithaya
Vice President - Equity Analytics
Vice President - Equity Analytics
Who follow rules in this country Sad

6Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 12:46 pm

SL.Market

SL.Market
Vice President - Equity Analytics
Vice President - Equity Analytics
@smallville wrote:I personally think companies should not pay 50% as dividends to make share holders happy.. The company should have a future too.. If they can turn the money to an investment, they can expect more reveue in another 1-2 years time..
Look at RENUKA CITY HOTELS, they used money from their investment portfolio to fund the hotel refurbishments + a bank OD, so no need to burden the share holders..
U can exect best use of money when the management is far sighted..

I fear if any law points to be added to this dividend policies by the govt that could ruin the companies in long run..

of course...
otherwise there wont be a company to pay dividends in the long run if the current profit is not managed properly,,,,,

7Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 12:57 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
@smallville wrote:I personally think companies should not pay 50% as dividends to make share holders happy.. The company should have a future too.. If they can turn the money to an investment, they can expect more reveue in another 1-2 years time..
Look at RENUKA CITY HOTELS, they used money from their investment portfolio to fund the hotel refurbishments + a bank OD, so no need to burden the share holders..
U can exect best use of money when the management is far sighted..

I fear if any law points to be added to this dividend policies by the govt that could ruin the companies in long run..

Yes, if every companies needs to pay 50% dividend the growth/expansion will need to find other means of money. It maybe okay for multinational companies and other matured companies having substantial asserts and means of funds. This will specially hurt the small/mid cap companies in young stages having ambitious growth plans.
If they give out 50% of their profit, then they might need to collect money when needed. So right issues etc will be more. It means money they give out as dividends+ more will be collected back.

I personally feel maybe about 20-25% will be acceptable range while investing profits to increase share holder wealth.

8Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 2:05 pm

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@slstock wrote:
@smallville wrote:I personally think companies should not pay 50% as dividends to make share holders happy.. The company should have a future too.. If they can turn the money to an investment, they can expect more reveue in another 1-2 years time..
Look at RENUKA CITY HOTELS, they used money from their investment portfolio to fund the hotel refurbishments + a bank OD, so no need to burden the share holders..
U can exect best use of money when the management is far sighted..

I fear if any law points to be added to this dividend policies by the govt that could ruin the companies in long run..

Yes, if every companies needs to pay 50% dividend the growth/expansion will need to find other means of money. It maybe okay for multinational companies and other matured companies having substantial asserts and means of funds. This will specially hurt the small/mid cap companies in young stages having ambitious growth plans.
If they give out 50% of their profit, then they might need to collect money when needed. So right issues etc will be more. It means money they give out as dividends+ more will be collected back.

I personally feel maybe about 20-25% will be acceptable range while investing profits to increase share holder wealth.

I do agree 20-25% reasonable.
If the EPS 3 -4 times of the Bank FD rate, then they can go for more than 50%.

Retained earnings

For any company, the amount of earnings retained within the business has a direct impact on the amount of dividends. Profit re-invested as retained earnings is profit that could have been paid as a dividend. The major reasons for using retained earnings to finance new investments, rather than to pay higher dividends and then raise new equity for the new investments, are as follows:

a) The management of many companies believes that retained earnings are funds which do not cost anything, although this is not true. However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash.
b) The dividend policy of the company is in practice determined by the directors. From their standpoint, retained earnings are an attractive source of finance because investment projects can be undertaken without involving either the shareholders or any outsiders.

c) The use of retained earnings as opposed to new shares or debentures avoids issue costs.

d) The use of retained earnings avoids the possibility of a change in control resulting from an issue of new shares.

Another factor that may be of importance is the financial and taxation position of the company's shareholders. If, for example, because of taxation considerations, they would rather make a capital profit (which will only be taxed when shares are sold) than receive current income, then finance through retained earnings would be preferred to other methods.

A company must restrict its self-financing through retained profits because shareholders should be paid a reasonable dividend, in line with realistic expectations, even if the directors would rather keep the funds for re-investing. At the same time, a company that is looking for extra funds will not be expected by investors (such as banks) to pay generous dividends, nor over-generous salaries to owner-directors.

9Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 3:03 pm

zen

zen
Manager - Equity Analytics
Manager - Equity Analytics
Are you talking about the deemed dividends tax? According to that if a company does not pay 25% of profit as dividends, the goverment will charge a tax on divideds assuming that the company had paid dividends.

10Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 5:20 pm

hirankb

hirankb
Senior Equity Analytic
Senior Equity Analytic
That is why FA says " %EPS growth has to be equal or more than % Retained earnings growth."

if not, it means the share holders are better off getting 100% devidend. if Retained earnings grew by 12% as a result of PAT-DIVIDENDS the EPS has to grow >12%. this means retained earnings not given as dividends are put to good use and the shareholders money is paying back. improved EPS will result in PER drop and improve market sentiment for the counter thus giving a capital growth. this is how the capitalist system is supposed to work . IF some idiots do not treat the market as a gambling den... then everybody is benifiting in the medium to long term.market drops will then be predictable corrections due only to regular profit taking and not crashes.

11Dividend payout policy Empty Re: Dividend payout policy Sat Nov 19, 2011 5:55 pm

Rajaraam


Vice President - Equity Analytics
Vice President - Equity Analytics
@lokuayya wrote:i remember sometimes back govt mentioned about a dividend payout policy for listed companies during a budget proposal.i cant remember exactly the details but as i remember, the directive was to payout 50% of profit as dividend.

is it in force? what happen to that proposal? is there any policy for dividends?

Yes . you are correct. But at the next budget as I remember that was withdrawn.

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