Appraisal of Dividend Policy

Standard Ceramic Industries Limited

1
 Assignment - 2
Course Code: FIN 435
Sec- (1)

Prepared For
Dr. Tanbir Ahmed Chowdhury
Professor
Department of Business Administration
East West University

Prepared by
Bariul Hossain Imon
ID-2016-1-10-353

Submission date
16/09/2020

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 Letter of Transmittal

16th September, 2020

Dr. Tanbir Ahmed Chowdhury

Professor
Department of Business Administration

East West University

Aftabnagar, Dhaka-1212

Dear Sir,

With due respect, I, a student of your course Fin435, section-01 have reported on “An Appraisal
of Dividend Policy of Standard Ceramic Industries Ltd”

Though I am in the learning curve, this report has enabled me to gain insight into the core fact of
Dividend Policy. So, it becomes an extremely challenging and interesting experience. Thank you
for your interactive assistance and support in formulating this idea. Without your inspiration, this
paper would have been an incomplete one.

Lastly, I would be thankful once again if you please give your judicious advice on the effort.

Yours sincerely,

Bariul Hossain Imon

ID: 2016-1-10-353

Department of Business Administration

East West University

3
 Acknowledgement

First of all, I express my deep gratitude to the Almighty Allah who created and nurture us in this
transitory world. I also have to put my heartfelt respect and gratitude to my course instructor for
His kindness and help that were provided to us to complete my report on the topic “An
Appraisal of Dividend Policy of Standard Ceramic Industries Ltd”. I have gathered data and
information for the purpose of analyzing the report.

I would like to thank my course instructor Prof. Dr. Tanbir Ahmed Chowdhury for his
excellent cooperation and guidance which has helped me to prepare this report properly. Without
his help this report would be impossible.

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Table of Contents
Executive Summary............................................................6
Chapter 1: Introduction...........................................................7
1.1. Overview of the Corporation:.........................................7
1.2. Objective of the Study:.................................................9
1.3. Scope and Methodology of the Study:.............................9
1.4. Limitation of the Study:.................................................9
Chapter 2: An Appraisal of Dividend Policy of Standard Ceramic Industries
Limited.............................................................................10
2.1. Overview of Dividend Fundamentals:.............................10
2.2. Financial Statement Analysis:.......................................13
2.2.1. Authorized Capital & Paid-Up Capital:.........................13
2.2.2. Face Value & Market Value of Share (Current):.............14
2.2.3. Retained Earnings:...................................................14
2.2.4. Net Income (Loss) after Tax:.....................................15
2.2.5. Earnings per Share:.................................................17
2.2.5. Cash Dividend:........................................................18
2.2.6. Stock Dividend:.......................................................18
2.2.7. Right Share:...........................................................19
2.2.8. Dividend Payout Ratio:.............................................19
2.2.9. Growth of Total Asset:..............................................20
2.3. Dividend Reinvestment plan in Standard Ceramic Industries
Limited:...........................................................................21
2.4. Dividend Policy followed by Standard Ceramic Industries
Limited:...........................................................................21
Chapter 3: Findings & Conclusion..............................................22
3.1. Findings....................................................................22
3.2 Conclusion:.................................................................22
3.3. References:...............................................................23

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Executive Summary

Standard Ceramic Industries limited is one of the ceramic companies in Bangladesh. It is an

enlisted public limited company in the stock exchange and raises their capital from shareholders
by issuing shares. Moreover, this company pays out dividend to shareholders throughout years.
Dividends refer to that portion of a firm’s earnings which are paid out to the shareholders.
Dividend can be two types such as Cash dividend and Stock dividend. In this paper, the dividend
policy of Standard Ceramic Industries limited is appraised on the basis of 5 years data and
considering different factors such as Authorized Capital, Paid-Up Capital, Face Value, Market
Value, 52 week price range, Net income after tax, Earnings per share, Cash dividend, Stock
dividend, Right Share, Dividend payout ratio, Retained Earnings and Growth of Asset.
After the analysis we have found that, the company is paying out more cash dividend and less
stock dividend. Besides that, the net asset value per share decreasing during 5 years. Therefore, it
can be said that this company is practicing the dividend relevance theory. In case of dividend
payout, the company maintains constant payout ratio. Moreover, it does not have any specific
dividend reinvestment plans and the company is not interested to expand in the near future.

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Chapter 1: Introduction

1.1. Overview of the Corporation:

Standard Ceramic Industries Limited, a public limited company with an authorized capital of
Tk. 100 million was floated on 13.08.1984. The factory was designed by famous ceramist Mr.
Kyoki Yamazaki of Sone Ceramic, Japan (Later a JODC expert). The operating machinery was
mainly procured from famous producer of Japan. The factory went into commercial production
on September 1st. 1993. The factory is located 10 Km from Dhaka International Airport. It has a
working force of 600 people. Through the active and dedicated participation of all SCI
personnel, the factory is now turning out approximately 47,000 assorted pieces (13.1 M.Tons) of
tableware per day. The superb quality and design of vitrified Stoneware Products coupled with
competitive price made our product a popularly choice at home and abroad. SCI Products are
available in 4 continents of the world including the United States and European markets.

Mission & Vision of Standard Ceramics:

They believe that mission is about people who are not projects, and vision is the art of seeing
what is invisible to others. Standard ceramics blends these two with the core principles for the
final product. To become the leading manufacturer of Ceramic Tiles & Sanitary ware in the
world by supplying creative & reliable goods globally to ensure maximum customer satisfaction.

Factory Details
Location: Saydana, K.B. Bazar, Joydebpur, Gazipur-1700 (30 km from Dhaka).
Production began September, 1993.
Operation Space 12,500 Sqm.
Annual Capacity 4765 Tons, 17 million assorted pieces.

Delivery Details
Lead time: 2 months for 1st 20' container & there after 1x20' container 7-10 days for continuous
order. Minimum order size: 1x20' container from current shapes.

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Facilities Available
Can develop customers’ desired shape (minimum order 5x20' container). Can have own back
stamps, decals (i.e. patterns). Microwave safe Gold Trim. Container loading in the City Railway
Station under personal supervision.

Countries Importing
Sweden, Finland, Spain, Italy, U.K, France, Germany (GSP available for EU, U.S.A., Canada,
Australia, New Zealand).

Major Customers
Premier Housewares, Wetherby Fashions, Argos, GUS, (U.K.), COFAC, Guerra San Martin, La
Esmeralda Regalos, Regalo Kasa (Spain), KF (Sweden), OY Hobby Hall (Finland), Scafati &
Co. Inc., Shadle Enterprises Inc. Boscov’s, (U.S.A.)

Requirement for firm order:

Irrevocable Letter of Credit at sight covering full amount.

Insurance
From buyers end.

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1.2. Objective of the Study:
The objective of this report is to observe the dividend policy of Standard Ceramic Industries
Ltd from 2015-2019 and Give a brief conclusion about the company’s dividend policy. This
includes an overview of the Company and which dividend policies they are practicing in the
company.

1.3. Scope and Methodology of the Study:

This is a study on appraisal of Standard Ceramic Industries Ltd. This section describes the
methodology of the study. All the information incorporated in this report has been collected from
the secondary sources like: DSE website, website of Standard Ceramic Industries Ltd & Annual
report of the Standard Ceramic Industries Ltd. The information incorporated in this report is
heavily the secondary sources.

1.4. Limitation of the Study:

 The study only cover the dividend policy of the Standard Ceramic Industries Ltd.

 Since this report is a part of my coursework so that I faced time limitation while making
the report.

 Every data was not available over the internet. Secondary source of information was not
sufficient for the completion of the report.

 When I was making this report I found the data was in unorganized way and in different
websites. So it was little bit confusing for me to choose the right data source.

 My knowledge about dividend is very limited. So it was difficult for me to analysis this
huge company’s dividend data of last 5 years.

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Chapter 2: An Appraisal of Dividend Policy
of Standard Ceramic Industries Limited

2.1. Overview of Dividend Fundamentals:

Dividends refer to that portion of a firm’s earnings which are paid out to the shareholders.
Dividend can be two types such as Cash dividend and Stock dividend. In cash dividend
shareholders get a certain percentage of cash of the net income whereas, a stock dividend is the
payment to existing owners of dividends in the form of stock.

A dividend policy is the policy a company uses to decide how much it will pay out to
shareholders as dividends from retained earnings. It is a part of net income distributed among the
shareholders. Whether and what amount to pay as cash dividend is decided by the board of
directors in (AGM) Annual General Meeting.

In the date of annual general meeting which is commonly known as record date; the corporation
Declares the payment date on which dividends will be paid to those shareholders who were
Registered in ex-dividend date.

Dividend theory has 2 types:

 Dividend irrelevance theory: Dividend irrelevance theory put forth by Metorn H. Millar
& Franco Modigliani (M&M) that in a perfect world, the value of a firm is unaffected by
the distribution of dividends and is determined solely by the earning power and risk of its
assets and that the manner in which it splits its earnings stream between dividends and
internally retained funds does not affect this value.

 There is no relationship between dividend and share price. Share price mostly depends on
basic earning power and risk of corporation. In this theory, shareholders are risk takers
and focused on long term investment. The informational content and Clientele effect is
considered in this theory.

 Dividend relevance theory: The theory Dividend relevance advanced by Gordon and
Lintner states that there is a direct relationship between a firm’s dividend policy and its
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 market value. Fundamentals to this proposition are their bird-in-the-hand argument,
which suggests that investors see current dividends as less risky than future dividends or
capital gains. That means investors are risk averse & attach less risk to current as
opposite to future dividends or capital gains.

 Cash Dividend reduces investor uncertainty causing investors to discount the firm’s
earnings at a lower rate and it places a higher value on the firm’s stock. If dividends are
increased, investor uncertainty will decrease, lowering the required return and increasing
the value of the firm’s stock. Empirical studies fail to provide conclusive evidence in
support of dividend relevance argument. However, financial managers & stockholders
believe that dividends are relevant.

Factors affecting dividend policy:

There are several factors affecting dividend policy which are Legal Constraints, Contractual
Constraints, Internal Constraints, Growth Prospects, Owner Considerations and Market
Considerations.

Legal constraints: The Legal Constraints denotes an earnings requirement limiting the number
of dividends to the sum of the firm’s most present & past retained earnings is sometimes
imposed. However, the firm is not prohibited from paying more in dividends than its current
earnings.
Maximum dividend = Retained earnings + Net income of the year

Internal constraints: Dividend may be constrained by internal factors which are investment in
working capital and investment in marketable securities. Internal Constraints considers the firm’s
ability to pay cash dividends is generally constrained by the amount of excess cash available
rather than the level of retained earnings which to charge them.

Contractual constraints: Dividend may be constrained by long term loans. Creditors may
impose restrictions on new debt, dividends and corporate salaries to protect the firm from
insolvency. Contractual Constraints considers the firm’s ability to pay cash dividends are
constrained by certain restrictive provisions in a loan agreement. These Constraints prohibit the
payment of cash dividends. Constraints on dividends help to protect creditors from losses due to
insolvency on the part of the firm.

Growth Prospects: Growth Prospect focuses on the firm’s financial requirements are directly
related to the degree of assets expansion that is anticipated.

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Owner Considerations: Owner Considerations includes tax status of a firm’s owners, owner’s
investment opportunities the potential dilution of ownership and prospects of firm. Wealth of the
firm’s owners reflected by the market price of share and market price of share influenced by the
dividend policy are stock holders prefer fixed or increasing level of dividends as opposed to a
fluctuating pattern of dividends.

Types of Dividend Policy:

There are three types of dividend policy which companies follow.

1. Constant Payout Ratio: It means the payment of fixed percentage of earning as dividend
every year. This certain percentage of dividend will be distributed among the shareholders every
year. Net income may differ from year to year. If a net loss incurs then no dividend will be paid.

2. Regular Dividend: In this type of dividend policy the investors get dividend at usual rate.
Here the investors are generally retired persons or weaker section of the society who want to get
regular income. This type of dividend payment can be maintained only if the company has
regular earning. If retained earnings are available certain percentage of dividend will be
distributed. Even if net loss incurs dividend will be paid by corporation. It is considered as a
positive signal among shareholders. It stabilizes the market value of shares. It helps in giving
regular income to the shareholders.

3. Low Regular and Extra Dividend: Here the company pays low regular dividend to the
shareholders. Sometimes extra dividend is paid. The company uses this practice due to
Following reasons:

 Due to uncertain earning of the company.

 Due to lack of liquid resources.
 The Company sometime afraid of giving regular dividend

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2.2. Financial Statement Analysis:
2.2.1. Authorized Capital & Paid-Up Capital:
Table: Authorized Capital & Paid-Up Capital

Year Authorized Capital Paid-Up Capital

2019 100000000 64610000
2018 100000000 64610000
2017 100000000 64610000
2016 100000000 64610000
2015 100000000 64610000

Figure: Authorized Capital & Paid-Up Capital

Authorized Capital & Paid Up Capital

120000000

100000000 100000000 100000000 100000000 100000000

100000000

80000000
64610000 64610000 64610000 64610000 64610000
60000000

40000000

20000000

0
2019 2018 2017 2016 2015

Authorized Capital Paid-Up Capital

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2.2.2. Face Value & Market Value of Share (Current):

Face value of share Tk. 10/=

2.2.3. Retained Earnings:

Table: Retained Earnings
Year Retained Earnings
2019 125000
2018 9251000
2017 19437000
2016 10446000
2015 10024000

Figure: Retained Earnings

Retained Earnings
25000000

20000000 19437000

15000000

10446000 10024000
10000000 9251000

5000000

125000
0
2019 2018 2017 2016 2015

Retained Earnings

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2.2.4. Net Income (Loss) after Tax:

Table: Net Income (Loss) after Tax

Year Net Income (Loss) after Tax:
2019 10049000
2018 10186000
2017 (2530000)
2016 6874000
2015 9688000

Figure: Net Income (Loss) after Tax

Net Income (Loss) after Tax

12000000
10049000 10186000
10000000 9688000

8000000
6874000
6000000

4000000

2000000

0
2019 2018 2017 2016 2015
-2000000
-2530000
-4000000

Net Income (Loss) after Tax

Growth Rate of net Income:

Growth is the percentage gain (or loss) in net income over time. Stocks with higher net income
growth rates are typically more desirable than those with lower net income growth rates. Growth
in net income is even more important than sales because net income tells the investor how much
money is left over after all of the operating costs are subtracted from sales.

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 Table: Growth Rate of Net Income (Loss) after Tax
Year Net Income (Loss) Growth Rate
2015 9688000 -
2016 6874000 -29.05%
2017 (2530000) -136.81%
2018 10186000 -0.5%
2019 10049000 -1.34%

Growth Rate of Net Income (Loss) after Tax

0.00% -0.50% -1.34%
0
2015 2016 2017 2018 2019
-0.2 -29.05%

-0.4

-0.6

-0.8

-1

-1.2
-136.81%
-1.4

-1.6

Growth Rate of Net Income (Loss) after Tax

Figure: Growth Rate of Net Income (Loss) after Tax

Interpretation: Growth in net income is even more important than sales because net income
tells the investor how much money is left over after all of the operating costs are subtracted from
sales. From the above tables we can see that Standard Ceramic Industries Limited’s net
income has decreased in 2016 then the company incurred a loss of 2530000 TK/= in 2017 . In
2018 they have overcome the loss but the next year in 2019 their net income again decreased.

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2.2.5. Earnings per Share:

The portion of a company's profit allocated to each outstanding share of common stock. Earnings
per share serve as an indicator of a company's profitability. It is calculated by subtracting net
income from dividend on preferred stock and divide by the number of shares outstanding.

Table: Earnings per Share

Year Earnings per Share Growth Rate %
2019 1.56 -1.27
2018 1.58 -0.05
2017 (0.39) -136.79
2016 1.06 -66
2015 1.50 -

Earnings per Share

2

1.56 1.58
1.5
1.5

1.06
1

0.5

0
2019 2018 2017 2016 2015

-0.5 -0.39

Earnings per Share

Figure: Earnings per Share

Interpretation: The table and graph provides the information of EPS of Standard Ceramic
Industries Ltd in last 5 years. It shows EPS was decreasing from 2015 to 2017 but in 2018 and
2019 the EPS has increased gradually.
There is a negative growth rate in Standard Ceramic’s EPS from year 2016-2019.

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2.2.5. Cash Dividend:
A cash dividend is money paid to stockholders, normally out of the corporation's current
earnings or accumulated profits. Not all companies pay a dividend. Usually, the board of
directors determines if a dividend is desirable for their particular company based upon various
financial and economic factors.
Table: Cash Dividend

Cash Dividend Growth Rate %

2014-2015 10% -
2015-2016 10% 0
2016-2017 Nil -
2017-2018 2% -
2018-2019 5% 150

Cash Dividend
12%

10% 10%
10%

8%

6%
5%

4%

2%
2%

0%
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

Cash Dividend

Figure: Cash Dividend

Interpretation: From the graph we can see that Standard Ceramic has paid cash dividend of 10%
from year 2014-2016. They didn’t paid any dividend in 2016-2017. They paid their shareholders
a cash dividend of 2% in year 2017-2018 and 5% in year 2018-2019.
There is a growth rate of 150% in cash dividend from year 2018-2019.

2.2.6. Stock Dividend:

The Standard Ceramic Industries Ltd didn’t paid any stock dividend to their shareholders from
year 2014-2019.

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2.2.7. Right Share:
The Company didn’t issued any right share.

2.2.8. Dividend Payout Ratio:

The dividend payout ratio indicates the percentage of each dollar earned that is distributed to the
owners in the form of cash. It is calculated by dividing the firm’s cash dividend per share by its
earning per share. With this policy, the firm establishes that a certain percentage of earnings is
paid to owners in each dividend period. The problem with this policy is that if the firm’s earnings
drop or if a loss occurs in a given period, the dividends may be low or even or zero. Because
dividends are considered an indicator of firm’s future condition, the firm’s stock price may thus
be adversely affected.
Table: Dividend Payout Ratio
Year Cash EPS Calculation Dividend Payout Growth
Dividend Ratio (%) Rate in (%)
2015 10% 1.50 (10/1.50) 6.67% -
2016 10% 1.06 (10/1.06) 9.43% 41.38%
2017 - (0.39) - - -
2018 2% 1.58 (2/1.58) 1.27% -
2019 5% 1.56 (5/1.56) 3.21% 152.76%

Dividend Payout Ratio

12%

10%

8%

6%

4%

2%

0%
2015 2016 2017 2018 2019

Dividend Payout Ratio

Figure: Dividend Payout Ratios

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Interpretation: From the graph, it can be said that Standard Ceramic had the highest dividend
payout ratio in 2016 that means the company paid 9.43% of each dollar earned that is
distributed to the owners in the form of cash. In this year the growth rate is also high than the
previous year. Another issue is that it has not paid any dividend in 2017. Investors seeking high
current income and limited capital growth prefer companies with high Dividend payout ratio.
However, investors seeking capital growth may prefer lower payout ratio because capital gains
are taxed at a lower rate. High growth firms in early life generally have low or zero payout
ratios. As they mature, they tend to return more of the earnings back to investors. The
company’s dividend payout ratio started increasing again from 2018.

There is growth rate of 152.76% in Dividend payout ratio in 2019.

2.2.9. Growth of Total Asset:

Table: Total Asset
Year Total Asset Growth Rate
2015 107821000 -
2016 107791000 -27.82%
2017 97722000 -9.34%
2018 108268000 10.79%
2019 118202000 9.18%

Total Asset
140000000

118202000
120000000
107821000 107791000 108268000
97722000
100000000

80000000

60000000

40000000

20000000

0
2015 2016 2017 2018 2019

Total Asset

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 Growth Rate of Total Asset

Growth Rate of Total Asset

15.00%
10.79%
10.00% 9.18%
5.00%

0.00%
2015 2016 2017 2018 2019
-5.00%

-10.00% -9.34%

-15.00%

-20.00%

-25.00%
-27.82%
-30.00%

Growth Rate of Total Asset

2.3. Dividend Reinvestment plan in Standard Ceramic Industries

Limited:
A dividend reinvestment plan (DRP) is a plan offered by a corporation that allows investors to
invest their cash dividend by purchasing additional shares or fractional shares on the dividend
payment date. The reinvestment of dividend is a method that Standard Ceramic Industries Ltd.
investors use for the creation of wealth. So, it is designed for long time investors but after
analyzing the data we see that the Standard Ceramic Industries Ltd. investors are not very much
eager to reinvest their dividend in the Standard Ceramic Industries Ltd. Earnings per Share (EPS)
also decreased gradually, Which means the Standard Ceramic Industries Ltd. earning power per
share is adversely affected. As the company’s asset allocation per share gradually decreased, it
results in decreasing the share price of the company, which sends a negative signal to the
investors to reinvest their dividend. Another cause of negative effect of reinvestment plan is that
the company was not issuing bonus shares or stock dividend and more amount of cash dividend.

2.4. Dividend Policy followed by Standard Ceramic Industries Limited:

From the analysis of dividend payments of Standard Ceramic Industries Limited, we can assume
that the company is following constant pay-out ratio dividend policy through which the company
ensure a certain percentage of net income is distributed as dividend as we can see from the tables
and graphs that if net income is occurred, whether it may increase the dividend payment or
decrease. The dividends are considered as an indicator of this company’s future conditions.

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Based on this policy, Standard Ceramic Industries Limited is calculated this dividend policy by
dividing the firm’s cash dividend per share by its earnings per share.

Chapter 3: Findings & Conclusion

3.1. Findings
Company Prospects:
1. From the table and graph of dividend payout ratio we can find that their dividend payout
was highest from 2015-2016 because they were in maturity stage that time. After that the
company went to decline stage and incurred a loss in 2017. Then again their dividend
payout ratio increased in 2018 and 2019 and they were in growth stage.
2. Owner of the corporation was in high tax bracket which results in lesser dividend payout
every year.
3. Shareholders of “Standard Ceramic Industries Ltd” prefer cash dividend over stock
dividend.
Company Dividend Policy
1. This company was not perfect but mostly follows dividend relevance theory which
indicates that the investors who invest here are risk. They are concern about present
benefits rather future. It is creating a negative impact towards long term investors.
2. As we know our stock market is imperfect and inefficient, the investors of Standard
Ceramic Industries limited were very much eager to get the cash dividend rather than
stock dividend.
3. They follow “Constant Payout Ratio” because their dividend payout ratio was
changing every year.

3.2 Conclusion:
The Dividend Policy is a financial decision that refers to the proportion of the
firm's earnings to be paid out to the shareholders. Here, a firm decides on the
portion of revenue that is to be distributed to the shareholders as dividends or
to be ploughed back into the firm. After the analysis of dividend policy, it can
be appraised that Standard Ceramic Industries Limited follows dividend
relevance theory and the constant pay-out ratio policy. The overall
performance of Standard Ceramic Industries Limited is moderate. As we
know the company is following relevance theory which indicates for those
who are risk averse. But in finance one of the principals is high risk leads to
high return. Their net asset value per share is not in a good condition because
high amount of cash dividend is given to the investors. It creates a lower
demand trends who are the risk takers. For that reason, they follow the

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 relevance theory. In that case their shareholders will not be eager to reinvest in
Standard Ceramic Industries Limited.

3.3. References:
1. Dhaka Stock Exchange

https://www.dsebd.org/displayCompany.php?name=STANCERAM

2. Annual Reports of Standard Ceramic Industries Ltd.

https://www.standardceramic.net/annual_report.php

3. Standard Ceramic Industries Limited

https://www.standardceramic.net/

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