DIVIDEND POLICY &

SHAREHOLDERS WEALTH MAXIMIZATION

By :
Anish
Ankan
Ashish
Atul
Prashant

Introducti
on :

What is a Dividend ?
What is a Dividend Policy ?
What is Bonus Issue & Stock Split of
shares ?
What is the Buyback and Reverse
Split of shares ?

What is
Dividend?
A dividend is a distribution to
shareholders out of profit or reserve
available for this purpose.
- Institute of Chartered Accountants of
India

What is Dividend
Policy :

Dividend policy determines the

division of earnings between payments
to shareholders and retained earnings.
- Weston and Bringham

Contd.

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.

Factors Affecting Dividend

Policy

Legal Restrictions
Magnitude and trend of earnings
Desire and type of Shareholders
Nature of Industry
Age of the company
Future Financial Requirements
Taxation Policy
Stage of Business cycle
Regularity
Requirements of Institutional Investors

Dimensions of Dividend Policy

Pay-out Ratio

Funds requirement
Liquidity
Access to external sources of financing
Shareholder preference
Difference in the cost of External Equity
and Retained Earnings
Control
Taxes

Contd.

Stability

Stable dividend payout Ratio

Stable Dividends or Steadily changing
Dividends

Types of Dividend
Policy

Regular Dividend Policy

Stable Dividend Policy

Constant dividend per share

Constant pay out ratio
Stable rupee dividend + extra
dividend

Irregular Dividend Policy

Effect of Dividend Policy on Value of Share

Case

If Dividend Payout
ratio Increases

1. In case of Growing
firm i.e. where r > k

Market Value of Share Market Value of a

decreases
share increases

2. In case of
Declining firm i.e.
where r < k

Market Value of Share Market Value of share

increases
decreases

3. In case of normal
firm i.e. where r = k

No change in value of No change in value of

Share
Share

Where,
r

= Internal Rate of Return

k = Cost of Equity Capital

If Dividend Payout
Ration decreases

What is Bonus
Issue ?

They are the shares issued to capitalize on

the reserves and surplus of the company
without charging the shareholders.
From the accounting perspective it involves a
debit to the free reserves & a credit to the
share capital.

What is Stock Split & Reverse Split ?

A stock split is a procedure that

increases or decreases a companys total
number of shares outstanding without
altering the firms market value.
This action, which requires advance
approval from the companys board of
directors, usually involves the issuance of
additional shares to existing stockholders.

What is Buy Back of

shares ?

The repurchase of outstanding shares

(repurchase) by a company in order to
reduce the number of shares on the
market. Companies will buy back shares
either to increase the value of shares
still available (reducing supply), or to
eliminate any threats by shareholders
who may be looking for a controlling
stake.

HUL Introduction

HUL- Key Fundamentals

Market Cap (Rs Cr.) : 136,816
EPS - TTM (Rs) : 17.88
P/E Ratio (x) : 35.37
Face Value (Rs) : 1.00
Latest Div. (%) : 1850.00
Div. Yield (%) : 2.92%
Industry P/E Ratio : 36.96

HUL Key Fundamentals

HUL EPS Vs DPS

Last 10 Years

Next 4 Years

HUL Bonus Issue & Stock Split

HUL Analysis

ITC Introduction

ITC Key Fundamentals

Market Cap (Rs Cr.) : 267,930
EPS - TTM (Rs) : 11.05
P/E Ratio (x) : 30.58
Face Value (Rs) : 1.00
Latest Div. (%) : 600.00
Div. Yield (%) : N.A.
Industry P/E Ratio : 34.48

ITC Business Matrix

ITC EPS Vs DPS

ITC Bonus Issue & Stock Split

ITC Analysis

Nestle Key Fundamentals

Market Cap (Rs Cr.) : 47,259
EPS - TTM (Rs) : 88.50
P/E Ratio (x) : 55.28
Face Value (Rs) : 10.00
Latest Div. (%) : 125.00
Div. Yield (%) : 0.98
Industry P/E Ratio : 34.11

Nestle EPS Vs DPS

Nestle Bonus Issue & Stock Split

Nestle Analysis

Comparative Analysis

Bibliograp
hy

Google
Moneycontrol
Economics Times
Wikipedia
Financial Management by Prasanna
Chandra.