Chapter 6: Dividend Policy Analysis: BATBC

Like other prominent multinational companies, BATBC has a history of providing handsome
amount of cash dividend to their stockholders. BATBC distributes its earnings to the
shareholders in the form of cash dividend mostly. However, to increase share liquidity it also
announced stock dividend in 2018 and 2020 respectively. In 2020, BATBC also announced
interim dividend (300% for 9 months) as well. BATBC suspended declaring interim dividend
from 2016 to 2013 to finance large expansion project. Overall payout also declined during that
period. However, the expansion project has already been finished and hence we are forecasting
almost 85-90% payout in coming years from British American Tobacco Bangladesh.
Behavior of EPS, DPS and Payout
BATBC’s EPS has gone faster than their DPS. However, their EPS has fluctuating pattern. On
the contrary, BATBC’s dividend per share has been slowly and steadily growing from 2010-2020
(Figure 6.1). In addition to that, BATBC’s dividend payout ratio has shown stable pattern-
ranging between 62.53% in 2010 and 99.17% in 2020(Figure 6.2). BATBC’s average payout
ratio during 2010 to 2020 is 63.49%.
Behavior of Share Price
Figure 6.3 shows that, BATBC’s stock price reached its peak in 2015. After 2016, BATBC’s
stock price has been remained stable. We have found positive correlation between BATBC’s
EPS and share price.

EPS and DPS PAtt ern

250

200

150

100

50

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

DPS EPS

Figure 6.1: BATBC’s EPS and DPS during 2010-2020

 Payout rati o, DURing 2010-2020
120.00%

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Figure 6.2: BATBC’s Payout Ratio during 2010-2020

SHARE PRICE PATTERN

3500

3000

2500

2000

1500

1000

500

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Price(YE)

Figure 6.3: BATBC’s Share Price Behavior (2010-2020)

Payout Price
Year DPS EPS Do ratio (YE)
2010 30 47.98 24 62.53% 716.5
2011 43 42.51 30 101.15% 605.2
2012 42 65.69 43 63.94% 839.5
2013 50 81.14 42 61.62% 1603.1
2014 55 104.7 50 52.53% 2650
2015 55 97.9 55 56.18% 2950
2016 60 126.37 55 47.48% 2483
2017 60 130.5 60 45.98% 1133.87
2018 50 166.87 60 29.96% 1180.57
 2019 40 51.37 50 77.87% 969.9
2020 60 60.5 40 99.17% 1180.8
Average 49.55 88.68 46.27 63% 1482.95
2021E 54.37 31.21 60.00 1.74 -
2022E 51.93 39.20 54.37 1.32 -
2023E 51.06 49.00 51.93 1.04 -
2024E 50.80 54.10 51.06 0.94 -
2025E 50.67 53.80 50.80 0.94 -
Table 6.4: BATBC’s Financial Data

Application of Linter’s Model on BATBC

We are applying Linter Model to explain the corporate dividend behavior of BATBC. We
performed regression analysis based on the dividend and EPS. We used this formula:
Divt = a + b1 * EPSt + b2 * Divt-1 + et (Equation: I)
Divt = 25.0009 + 0.0294 * EPSt + 0.4741* Divt-1 (Appendix 1)
From the equation 1, it has been visible that BATBC’s dividend decision is influenced more by
than previous year DPS rather than current EPS. Let’s forecast the DPS based the data from
Table 6.4.
Div2020 = 60, EPS2021 = 31.2 (Table 6.4)
Div2021 = 25.0009 + (0.0294 * 31.2) + (0.4741* 60) = 54.37
We can calculate the Target Payout Ratio and Speed of Adjustment Factor of BATBC from the
equation derived from regression analysis. Here coefficient b1 = 0.0294 = bp (Where, b = speed
of adjustment factor and p is the target payout).
bp= 0.0294, b2 = (1-b) = 0.4741
b= 0.5259
0.5259*p = 0.0294
p= 0.0559
BATBC’s empirically determined target payout ratio is 5.59%. Whereas, their actual average
payout during 2010-2020 is 63%. We can also interpret their Speed of Adjustment Factor.
BATBC’s speed of adjustment factor is 0.5259 meaning that BATBC is slowly moving to the full
adjustment of payout to earnings. Moreover, we are also seeing that, BATBC’s dividend per
share has been remained stable over the 10 years though their EPS has fluctuating patterns. In
other words, BATBC is smoothing dividends.

1
BATBC’s projected EPSs (2021-25) are taken from BATBC annual report and EBL Research.
Appendix 1: Regression Analysis for Linter’s Model
           
Regression Analysis  
   
  R² 0.453  
Adjusted
  R² 0.316 n 11  
  R 0.673 k 2  
  Std. Error 8.108 Dep. Var. Cash Dividend per share (Current)
   
ANOVA
table  
Source SS df MS F p-value  
Regression 434.7524 2 217.3762 3.31 .0898  
Residual 525.9748 8 65.7469  
Total 960.7273 10        
   
   
Regression output confidence interval
coefficient
variables s std. error t (df=8) p-value 95% lower 95% upper
Intercept 25.0009  
EPS 0.0294 0.1135 0.259 .8024 -0.2324 0.2911
Do 0.4741 0.3879 1.222 .2564 -0.4203 1.3686