20-07-2021

Dividend Controversy

Dr. Manas Mayur

Dividend
 A distribution of a portion of a company's earnings,
decided by the board of directors, to its shareholders.
 The dividend is most often quoted in terms of the Rs.
amount each share receives (dividends per share). It can
also be quoted in terms of a percent of the current
market price, referred to as dividend yield.
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 Dividends are one way in which companies "share the

wealth" generated from running the business.

 The companies that pay dividend are usually more stable

and established, not "fast growers." Those still in the rapid
growth phase of their life cycles tend to retain all the
earnings and reinvest them into their businesses.

Profit

Retained earnings Distribute to

shareholders
•What do firms prefer?
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 What do investors prefer?

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Types
 Cash
 Additional stock

Measures of Dividend Policy

•Dividend Yield = Annual dividend / Price per share
•Dividend Payout = Dividends / Earnings

Different Types of Dividends

 Many companies pay a regular cash dividend.

 Public companies often pay quarterly.
 Sometimes firms will pay an extra cash dividend (special
dividend).
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Different Types of Dividends

 Companies will often declare stock dividends.

 No cash leaves the firm.
 The firm increases the number of shares outstanding.
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Different Types of Dividends

 Some companies declare a dividend in kind.
 Wrigley’s Gum sends a box of chewing gum.
 Relaxo and Titan shareholders are offered discount coupons.
 Deepak Nitrite has offered insurance to its shareholders
 Dundee Crematoria offers shareholders discounted
cremations.
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Standard Method of Cash Dividend

Cash Dividend - Payment of cash by the firm

to its shareholders.

Ex-Dividend Date - Date that determines

whether a stockholder is entitled to a dividend
payment; anyone holding stock immediately
before this date is entitled to a dividend.

Record Date – Date on which company

determines existing shareholders.

Procedure for Cash Dividend

25 Oct. 1 Nov. 2 Nov. 5 Nov. 7 Dec.

…

Declaration Cum- Ex- Record Payment

Date dividend dividend Date Date
Date Date
Declaration Date: The Board of Directors declares a payment of dividends.
Cum-Dividend Date: Buyer of stock still receives the dividend.
Ex-Dividend Date: New buyer doesn’t receive the dividend.
Record Date: The corporation prepares a list of all individuals believed to
be stockholders as of 5 November. (In today's market, settlement of stocks
is a T+2 process, which means that a transaction is entered into the
company's record books two business days after the trade.)
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Recent Corporate Announcements

(Dividends Declared)
Company Type % Announcement Record Ex-dividend
Name
ITC Interim 500 11-02-2021 23-02-2021 22-02-2021

NHPC Interim 12.5 11-02-2021 23-02-2021 22-02-2021

Suprajit Eng Interim 75 10-2-2021 22-02-2021 18-02-2021

MRF Interim 30 28-01-2021 19-02-2021 17-02-2021

Page Ind. Interim 1500 15-01-2021 19-02-2021 17-02-2021

Price Behavior
 In a perfect world, the stock price will fall by the
amount of the dividend on the ex-dividend date.
-t … -2 -1 0 +1 +2 …

$P

$P - div
The price drops Ex-
by the amount of dividend
the cash Date
dividend. Taxes complicate things a bit. Empirically, the
price drop is less than the dividend and occurs
within the first few minutes of the ex-date.
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Majesco Limited

Majesco decided to pay Rs.974 dividend when its stock price was Rs. 985.

The stock went ex dividend on Dec. 25, 2020.

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NHPC decided to pay Rs.1.7 dividend per share.

The stock went ex dividend on Jan. 20, 2017.

Why Dividend matters?

Company Unadjusted Final Dividend Yield (as per

share price in (2019-20) initial cost of
Jan 2000 purchase)

Britannia Rs. 80 per share Rs. 35 per share 43.75%

Titan Rs. 6 per share Rs. 5 per share 83%

Asian Paints Rs. 25 per share Rs. 10.5 per share 42%