A STUDY ON DIVIDEND DISTRIBUTION

POLICY OF A FIRM ON EATON POWERING

WORLDWIDE

PROJECT REPORT

Submitted by

K. AKSHAYA DEVI

Register No: 22810256

Under the guidance of

Dr. BAIG MANSUR IBRAHIM, MBA

ASSOCIATE PROFESSOR

Department of management studies

In Partial fulfilment for the degree of

MASTER OF BUSINESS ADMINISTRATION

DEPARTMENT OF MANAGEMENT STUDIES

MANAKULA VINAYAGAR INSTITUTE OF TECHNOLOGY

PUDUCHERRY – 605 107

AUGUST – SEPTEMBER 2023

 MANAKULA VINAYAGAR INSTITUTE
OF TECHNOLOGY,
PONDICHERRY UNIVERSITY

DEPARTMENT OF MANAGEMENT STUDIES

BONAFIDE CERTIFICATE

This is to certify that the project work entitled “A STUDY ON DIVIDEND POLICY
AT EATON POWERING BUSINESS WORLDWIDE, SEDHARAPET” is a bonafide
work done by AKSHAYA DEVI K (REGISTER NO: 22810256) in partial fulfilment of the
requirement for the award of Master of Business Administration by Pondicherry University
during the academic year 2023-2024.

GUIDE HEAD OF THE DEPARTMENT

Submitted for viva-voce Examination held on

EXTERNAL EXAMINER INTERNAL EXAMINER

 ACKNOWLEDGEMENT

I express my sincere thanks and deep sense of gratitude to our Management of

MANAKULA VINAYAGAR INSTITUTE OF TECHNOLOGY, Pondicherry, Chairman
&Managing Director Shri. M. DHANASEKARAN and Shri. S.V. SUGUMARAN, vice-
Chairman & Secretary -SMVE Trust for providing necessary and essential facilities to do this
project report.

I am extremely grateful to our principal Dr. S. MALARKKAN for hid support and
encouragement for the completion of my project report.

I express a deep sense of gratitude to my Guide Dr. BAIG MANSUR IBRAHIM,

Associate professor, Department of Management Studies, for her encouragement, support and
guidance to complete project work successfully.

I convey my heartiest thanks to Mr. THIYAGARAJAN, FINCANCE MANAGER OF

EATON POWERING WORLDWIDE, who kindly granted permission to do this project report
in his esteemed company.

Finally, I express my sincere thanks to all my family members and friends for their
co-operation in completion of this project report. Also I thank almighty for this immense
blessing.

AKSHAYA DEVI K
 ABSTRACT

The study is an outcome of the topic called A study on dividend distribution policy of a firm
at Eaton Powering Worldwide.

Dividend policy is crucial for a company’s financial strategy, balancing the distribution of
profits to shareholders and the rentention of earnings for future growth of company and more
sharholders.

Determining the dividend distribution is the main objective of this study. The study's secondary
objectives are to recommend that the dividend be retained in order to further develop the firm
and provide shareholders with higher dividend payments.

Analysis and interpretation of the dividend distribution policy of a firm have been done using
analytic tools and thumb rules. These tools include dividend yield, payout, capital expenditure,
growth, net income, equity, debt, asset, and earning per share.

In the study on dividend related across the year 2019-20, 2020-21, 2021-22. Prompt an
exploration into the economic and financial condition influencing there trend. The higher
dividend yeild in 2021-22 compared to 2019 may be indicative of an improved economic
environment, encouraging companies to reward shareholder with increased dividend. The
fluctuation in dividend payout ratio, with diluted and basic suggest to changing economic
landscape.

The higher dividend growth rate in 2021-22 and the consistent dividend per share over the three
year underscore the importance of stability in a company’s dividend policy, fostering investor
confidence.

Through analysis it is found that the dividend distribution is good in the firm. It is suggested to
the firm to retention the dividend to make improvement opportunities of the firm. By using of
walter model the distribuion of dividend history is good and it is adversely distribution.
 TABLE OF CONTENT

CHAPTER TITLE PAGE NO

ACKNOWLEDGEMENT

ABSTRACT

LIST OF TABLES

LIST OF CHARTS

I INTODUCTION

OBJECTIVE OF THE STUDY

NEED FOR THE STUDY

II
SCOPE FOR FURTURE STUDY

LIMITATIONS OF THE STUDY

III REVIEW OF LITERATURE

IV RESEARCH METHODOLOGY

V ANALYSIS AND INTERPRETATIONS

 FINDINGS OF THE STUDY
VI
SUGGESTIONS AND RECOMMENDATIONS

CONCLUSION
 LIST OF TABLES

CHART TITLE PAGE NO.

NO.

5.1 Dividend yield

5.2 Dividend payout ratio

5.3 Dividend growth ratio

5.4 Dividend to net income

5.5 Dividend to asset ratio

5.6 Dividend to equity ratio

5.7 Dividend to revenue ratio

5.8 Dividend to debt ratio

5.9 Dividend to capital expenditure ratio

5.10 Dividend per share

5.11 Dividend to book value ratio

5.12 Dividend market capitalization ratio

5.13 Dividend to price earnings ratio

5.14 Walter model

 LIST OF CHARTS

CHART TITLE PAGE NO.

NO.

5.1 Dividend yield

5.2 Dividend payout ratio

5.3 Dividend growth ratio

5.4 Dividend to net income

5.5 Dividend to asset ratio

5.6 Dividend to equity ratio

5.7 Dividend to revenue ratio

5.8 Dividend to debt ratio

5.9 Dividend to capital expenditure ratio

5.10 Dividend per share

5.11 Dividend to book value ratio

5.12 Dividend market capitalization ratio

5.13 Dividend to price earnings ratio

5.14 Walter model

 CHAPTER - 1

INTRODUCTION
 COMPANY PROFILE

1.1 Introduction

A company profile serves as a formal introduction to a business, with the primary goal of
providing information to the audience about its offerings, such as products and services. It also
encompasses a comprehensive overview of the company's history, organizational structure,
available resources, performance metrics, and overall reputation.

1.2 Electrical and Power Industry

The electrical and power industry is a multifaceted sector at the heart of modern societies
functioning. It encompasses the entire lifecycle of electrical energy, starting with power
generation from various sources, such as fossil fuels, nuclear, and renewable energy. Once
generated, electricity is transmitted across extensive networks, undergoing voltage
transformations and ultimately being distributed to homes, businesses, and industries. Ensuring
grid stability and reliability is paramount, with smart grid technologies increasingly playing a
pivotal role in managing supply and demand effectively.

The industry is undergoing a significant transformation by integrating renewable energy

sources like solar and wind into the grid and developing energy storage solutions to address their
intermittent nature. Energy efficiency is a constant pursuit, driving innovation in appliances,
lighting, and industrial processes. Safety standards and certifications are vital to maintaining the
integrity of electrical systems, while ongoing research and development efforts aim to make power
generation and distribution more efficient and sustainable. In an era of environmental
consciousness, the industry is actively reducing its carbon footprint by adopting cleaner energy
sources and implementing eco-friendly practices.

The electrical and power management industry is an indispensable force powering the
modern world while adapting to meet evolving energy needs and environmental challenges.
1.3 Eaton Power quality Private Limited

Eaton Power Quality Private Limited is a subsidiary of Eaton Corporation, a multinational

power management company.

Eaton is known for providing a wide range of products and solutions related to power
management, including electrical components, power distribution, control, and monitoring
systems. These solutions are designed to help organizations ensure the quality, reliability, and
efficiency of their electrical power infrastructure.

Eaton Power Quality Private Limited may be involved in offering power quality solutions,
including uninterruptible power supplies (UPS), surge protection, power distribution, and
related services to businesses and industries in India or other specific regions.

Eaton Power Quality, a division of Eaton Corporation, is a global leader in providing a

wide range of solutions and services for managing electrical power effectively and efficiently.
Here’s some more detailed information about the company.

1.Product portfolio:

Eaton power quality offers a comprehensive portfolio of products, including

uninterruptible power supplies (UPS), Power Distribution Units (PDUs), power
management software, surge protection devices, and more. These products are designed to
protect critical equipment, ensure business continuity, and enhance energy efficiency.

2. Customized Solutions:

Eaton understands that different industries and applications have unique power quality
requirements. They work closely with customers to develop customized solutions tailored
to specific needs, whether it’s for data centers, healthcare facilities, industries plants, or
commercial buildings.

3. Eco- Friendly Initiatives:

The company is committed to sustainability and offers energy-efficient solutions to

reduce the environmental footprint. This includes energy-efficient UPS systems and power
management software that helps optimize power usage and reduce carbon emissions.
4. Global Presence:

Eaton Power Quality operates in over 175 countries, serving a diverse range of
customers in various industries. This global presence ensures that customers around the
world have access to their expertise and products.

5. Industry Leadership:

Eaton Power Quality is widely recognized for its innovation and leadership in the power
quality and electrical industry. They are known for setting industry standards and pushing
the boundaries of what’s possible in power managements.

6. Technical Support and Services:

Eaton offers comprehensive support and services, including professional consulting,

installation, and maintenance, to ensure that power systems run smoothly and reliably.

7. Research and Development:

The company invests heavily in research and development to stay at the forefront of
technological advancements. This includes developing solutions that address emerging
challenges in power management, such as integrating renewable energy sources and
accommodating evolving data center needs.

8. Training and Education:

Eaton provides training and educational resources to help customers and professionals
better understand power management and improve their knowledge and skills.

Eaton Power Quality's commitment to innovation, sustainability, and customer

satisfaction has made it s trusted partner for businesses and organizations seeking reliable,
efficient and environmentally responsible power solutions.
1.4 Vision and Mission:

Vision:

To improve the quality of life and environment through the use of power management
technologies and services.

Mission:

What matters reinforces the importance we place on our deepening impact on the world
as the need for power continues to grow. This is why our promise is to make what matters
work.

1.5 WORKS OF EACH FUNCTIONAL DEPARTMENT’S

➢ Purchase department: In this department the purchase team has to analyze the
raw materials that are needed. They have some sources for purchase the raw
materials. In this department there are three types of sources they are; Domestic
(Supplier’s), Other countries (from Eaton), Inter companies.
➢ NPD (New Product Development): New Product Development (NPD) this
department analyzes the market structure and people needs and then makes some
changes in the product then launch it as a new product for increase the company’s
revenue and customer. Their main goal is customer satisfaction.
➢ Logistics: The logistics department is for import and export of the raw material
that are purchased by purchase department. In logistics the import of raw materials
in done through only sea and air ways but the other ways covered by purchase
department. After the import of the raw materials the logistics will hand over the
raw materials to purchase department for cross checking and quasi clearance.
➢ Finance: The finance department is the main department because they handle the
income and expenditure of the company and the payment for purchasing raw
materials is done by finance department to suppliers from all over the world. They
also attend the customer’s complaint about the product and the payment. The
finance department always busy at their work.
➢ Data Management: Data management is like the storage of all documents and
files of the company and their details. Data management has every document that
 is related to their company like invoice and shipment bill and payment bill, etc.
They also have the data of their employee and their products pattern rights.
➢ Human Resource: Human resource department is the one interview’s people and
take care of the employees and their families. In Eaton the human resource
department is the kindest department to everyone. The employee’s health report
was taken by HR department. Human resource department is the one who accept
the internship in the company. Human resource department is compulsory in each
company. “The employee’s health is the company’s wealth”. This department
arranges the man power for companies work.
➢ Production: In Production department, the raw materials are assembled into a
product. There are so many employees in production department. The Eaton
Company I done my internship has three plants for production. In production
Frotection to employees.
➢ Quality: The quality of the Eaton’s product is much better than other products.
They use silver instead of copper metal. They check their products twice before
packing it and deliver to customers. So, the quality is very good when it is Eaton.
They gave priority to their customers.

1.6 PRODUCT’S THEY ARE PRODUCING:

• Fuse (low voltage)

• Fuse (high voltage)
• Single phase ups
• Three phase ups
• MCB- Miniature Circuit Breaker
• RMU- Ring Main Unit
• CCB- Residual Current Circuit Breaker.
 CHAPTER – II

OBJECTIVE OF THE STUDY

PRIMARY OBJECTIVES:

To study on dividend distribution policy of a firm at M/S Eaton Powering Worldwide

company.

SECONDARY OBJECTIVES:

• To determine the efficiency of dividend distribution in its yield, payout and growth.
• To ascertain the impact of dividend on firm financial parameter such as net income,
equity, debt, asset, capital expenditure and earning per share.
• To apply Walter model in order to find out impact of dividend in firms overall return
and it is a growth firm, they are giving more payout to the shareholders, because of
r > k the company has an opportunities of expansion the business in future and they
can give more dividend to the shareholder.
• To provide valuable suggest in order to improve dividend distribution policy of the
firm.
NEED OF THE STUDY:

• To evaluate yield, payout ratio, and growth rate to gauge the efficiency of current
dividend distribution, providing insights into how effectively profits are shared with
shareholders.
• To examine the impact of dividends on crucial financial parameters (net income, equity,
debt, assets, capital expenditure, and earnings per share) to understand the broader
financial implications of the firm’s dividend policy.
• To apply the Walter model to assess the impact of dividends on the overall return,
especially in the context of being a growth-oriented firm.
• To identify expansion opportunities based on the condition r > k and consider adjusting
payout ratios accordingly.
SCOPE OF THE STUDY:

• To Studying the dividend policy serves as the foundation for additional research aimed
at determining if the company is growing, declining, or remains neutral, as well as the
retention and distribution to shareholders.
• To know that it is common across the board for the manufacturing sector.
• To researching remuneration policy, it is useful to know the amount of remuneration
paid to shareholders and to obtain in-depth information about the research.
LIMITATIONS OF THE STUDY:

• The duration of the study is limited. So it may not be able to cover the past few years
of report.
• The only three-year report need to analyze if have more time to dig into the past ten
years to identify the trends.
• It can be easy to learn in theory, but difficult to implement in practice.
 CHAPTER - III

REVIEW OF LITERATURE
3.1 INTRODUCTION:

Dividends are payments made by a corporation to its shareholders members. It is the portion
of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that
money can be put to two uses: it can either be re-invested in the business called retained
earnings, or it can be paid to the shareholders as a dividend. Many corporations retain a portion
of their earnings and pay the remainder as a dividend.

For a joint stock company, a dividend is allocated as a fixed amount per share. Therefore, a
shareholder receives a dividend in proportion to their shareholding. For the joint stock
company, paying dividends in not expense; rather, it is the division of an asset among
shareholders. Public companies usually pay dividends on a fixed schedule, but may declare a
dividend at any time, sometimes called a special dividend to distinguish from a regular one.

Cooperatives, on the other hand, allocate dividends according to member’s activity, so their
dividends are often considered to be a pre-tax expense.

Dividends are usually settled on a cash basis, store credits common among retail consumer’s
cooperative and shares in the company either newly- created shares or existing shares bought
in the market. Further, many public companies offer dividend reinvestment plans, which
automatically use the cash dividend to purchase additional shares for the shareholder.

Several factors must be considered when establishing a firm’s dividend policy. These include:

• The liquidity position of the firm-just because a firm has income doesn’t mean that it
has any cash to pay dividends.
• Need to repay debt-oftentimes there are negative covenants that restrict the dividends
that can be paid as long as the debt is outstanding.
• The rate of asset expansion- the greater the rate of expansion of the firm, the greater the
need to retain earnings to finance the expansion.
• Control of the firm-if dividends are paid out today, equity may have to be sold in the
future causing a dilution of ownership.
• Legal considerations.
 • Technically, it is illegal to pay a dividend except out of retained earnings. This is to
prevent firms from liquidating themselves out from underneath the creditors.
• Internal revenue service section 531- improper accumulation of funds. This is to prevent
individuals from not paying dividends in order to avoid the personal income taxes on
the dividend payments.

Is it in the best interest of shareholders to pay out earnings as dividends or to reinvest them in
the company? The answers to this depend upon the investment opportunities that firm has.
There are three fundamental policies to paying cash dividends that firms employ:

• Pay a constant dollar amount each year regardless of earnings per share. This is what
most firms do.
• Use a constant payout ratio for example,50% of EPS.
• Pay a low, fixed dividend amount plus “dividend extras” or “special dividends”. This
allows the company to avoid having to cut dividends since the basic dividends is low,
but also avoids the improper accumulation of funds during good years.

A cut in dividends generally hurts a stock’s price because it sends a signal to

stockholders that management’s outlook for the future is that the company cannot continue to
pay the dividend. Most companies therefore start off with a low dividend and only increase it
when they feel that the earnings prospects have improved sufficiently to allow for maintaining
a higher dividend. Many companies will even borrow money in a bad year in order to avoid
cutting the dividends.

The market price is influenced by dividends through what is called the clientele effect.
That is, some investors want dividends such as retirees and pension funds while others do not
want dividends wealthy individuals but would prefer capital gains which are taxed at a lower
rate and deferred.

Flotation costs encourage a company to retain earnings in order to minimize having to

sell additional stock in the future. As awe saw in the cost of capital calculations, the flotation
costs make new equity more expensive than retained earnings.

Some companies pay no dividends. Why? Because they have good investment
opportunities and reinvest the earnings.
3.2 Meaning of Dividend:

The term dividend refers to that part of the profit (after tax) which is distributed among the
owners/ shareholders of the firm. In the other words, it is taxable payment declared by a firm’s
board of directions and given to its shareholders out of the firm’s current or retained earnings
usually quarterly. Dividends are usually given as cash (cash dividend), but they can also take
the form of stock (stock dividend) or other property. Dividends provide an incentive to own
stock in stable firms even if they are not experiencing much growth. Firms are not required to
pay dividends. The firms that offer dividends are most often firms that have progressed beyond
the growth phase and no longer benefit sufficiently by reinvesting their profits. So, they usually
choose to pay them out to their shareholders, also called payout.

Definition of dividend policy:

According to Weston and Brigham define as, “Dividend policy determines the division
of earnings between payments to shareholders and retained earnings”.

According to Gitman define as, “The firm’s dividend policy represents a plan of action to be
followed whenever the dividend decision must be made”.

3.3 Forms of payment:

Cash dividends (most common) are those paid out in the form of a cheque. Such
dividends are a form of investment income and are usually taxable to the recipient in the year
they are paid. This is the most common method of sharing corporate profits with the
shareholders of the company. For each share owned, a declared amount of money is distributed.
Thus, if a person owns 100 shares and the cash dividend is $0.50 per share, the person will be
issued a cheque for $50.

Stock or scrip dividends are those paid out in form of additional stock shares of the
issuing corporation, or other corporation such as its subsidiary corporation. They are usually
issued in proportion to shares owned for example, for every 200 shares of stock owned, 5%
stock dividend will yield 5 extra shares. If this payment involves the issue of new shares, this
is very similar to a stock split in that it increases the total number of shares while lowering the
price of each share and does not change the market capitalization or the total value of the shares
held.

Property dividends or dividends are those paid out in the form of assets from the issuing
corporation or another corporation, such as a subsidiary corporation. They are relatively rare
and most frequently are securities of other companies owned by the issuer, however they other
forms, such as products and services.

Other dividends can be used in structures finance. Financial assets with a known market
value can be distributed as dividends; warrants are sometimes distributed in this way. For large
companies with subsidiaries, dividends can take the form of shares in a subsidiary company. A
common technique for spinning off a company from its parent is to to distribute shares in the
new company to the old company’s shareholders. The new shares can then be traded
independently.

3.4 DATES

Dividends must be declared by a company’s Board of Directors each time they are paid.
For public companies. There are four important dates to remember regarding dividends. These
are discussed in detail with examples at the Securities and Exchange commission site.

The declaration date is the day the board of directors announces its intention to pay a
dividend. On this day, a liability is created and the company records that liability on its books;
it now owes the money to the shareholders. On the declaration date, the board will also
announce a date of record and a payment date.

The in-dividend date is the last day, which is one trading day before the ex- dividend
date, where the stock is said to be cum dividend. In other words, existing holders of the stock
and anyone who buys it on this day will receive the dividend, whereas any holders selling the
stock lose their right to the dividend. After this date the stock becomes ex dividend.

The ex-dividend date (typically 2 trading days before the record date for U.S. securities)
is the day on which all shares bought and sold no longer come attached with the right to be
paid the most recently declared dividend. This is an important date for any company that has
many stockholders, including those that trade on exchanges, as it makes reconciliation of who
is to be paid the dividend easier. Existing holders of the stock will receive the dividend even if
they now sell the stock, whereas anyone who now buys the stock will not receive the dividend.
It is relatively common for a stock’s price to decrease on the ex-dividend date by an amount
roughly equal to the dividend paid. This reflects the decrease in the company’s assets resulting
from the declaration of the dividend. The company does not take any explicit action to adjust
its stock price; in an efficient market, buyers and sellers will automatically price this in.

Whenever a company announces a dividend pay-out, it also announces a “book closure

date” which is a date on which the company will ideally temporarily close its books for fresh
transfers of stock. Read “book closure” for a better understanding.

Shareholders who properly registered their ownership on or before the date of record,
known as stockholders of record, will receive the dividend. Shareholders who are not registered
as of this date will not receive the dividend. Registration in most countries is essentially
automatic for shares purchased before the ex-dividend date. The payment date is the day when
the dividend checks will actually be mailed to the shareholders of a company or credited to
brokerage accounts.

3.5 Types of dividend policies:

There are many dividend policies, but most policies fall into one of three categories.

Stable Dividend Policy:

A stable dividend policy is characterized by the tendency to keep a stable dollar amount of
dividends per share from period to period.

Corporations tend to establish a predetermined target dividend payout ratio in which dividends
are increased only after management is convinced that future earnings can support the higher
dividend payment. Under this policy, dividend changes will normally lag behind earnings
changes. Firms are reluctant to lower their dividend payments, even in times of financial
distress. Most firms follow a relatively stable dividend policy for four reasons:

• Many business executives believe that stable dividend policies lead to higher stock
prices. The empirical evidence on the relationship between dividend policy and stock
prices is inconclusive.
 • Investors may view constant or steadily increasing dividends as more certain than a
fluctuating cash dividend payments.
• There is less chance to signal erroneous informational content with a stable dividend
policy. Thus, firms tend to avoid reducing the annual dividend because of the
information content that a dividend cut may convey.

Constant Dividend Payout Ratio Policy:

A constant dividend payout ratio policy is one in which a firm pays out a constant
percentage of earnings as dividends.

This policy is easy administer once the firm selects the initial payout ratio. A constant
dividend payout policy will cause dividends to be unstable and unpredictable, if earnings
fluctuate. Few firms follow a constant dividend payout policy because stock prices may be
adversely affected by highly volatile dividends.This policy is easy administer once the firm
selects the initial payout ratio. A constant dividend payout policy will cause dividends to be
unstable and unpredictable, if earnings fluctuate. Few firms follow a constant dividend payout
policy because stock prices may be adversely affected by highly volatile dividends.

Generous Dividend Policy:

Firms which adopt this dividend policy, reward shareholders generously by stepping up
total dividend payment over time. Typically, these firms maintain the dividend rate at a certain
level 15% to 20% and issue bonus shares when reserves position and earnings potential permit.
Such firms normally have a strong shareholders orientation.

Erratic Dividend Policy:

Firms which follow this dividend policy, do not bother about the welfare of equity
shareholders. Dividends are paid erratically whenever the management believes that it will not
strain its resources.
3.6 Importance of Dividend Policy:

The most important thing about a dividend policy is that it shows shareholders how stable and
profitable a company is. A consistent dividend payout indicates a company’s solid financial
health, which inspires investor confidence.

• A consistent dividend distribution improves the company’s standing in the financial

markets. It shows the company’s financial health, attracting a broader range of potential
investors.
• A company’s dividend policy is essential to its financial planning. It outlines the
allocation of profits between dividends and retained earnings, facilitating strategic
financial management and growth initiatives in the future.
• A stable dividend policy provides investors with a sense of assurance, particularly in
volatile market conditions. It shows how resilient the company is and how smart its
financial management is, even though the economy is changing.

The dividend policy serves as the foundation for all capital budgeting and capital structure
design efforts. A company’s dividend policy divides its net earnings into two categories:
retained earnings and dividends. The retained earnings are used to fuel the company’s long-
term expansion. It is the most important source of funding for a firm’s practice investment.
Cash dividends are paid. As a result, the earnings distribution makes use of the company’s
capital. A company that wants to pay dividends while simultaneously needing money to
support its investment prospects will have to turn to other sources of funding, such as debt or
stock offerings. The following are some of the reasons why a dividend policy is necessary in
any corporation.

• Develop Shareholder’s Trust when a company’s net profits% remains consistent, it

maintains a steady market value and pays appropriate dividends. In such an
organization, the shareholders are likewise confident in their investment choice.
• Influence Institutional Investors A great reputation in the financial industry comes
with a fair policy. As a result, the business’s strong market position attracts institutional
investors who are willing to lend the company a larger sum.
• Future prospects The fund sufficiency for the next project end eavor and investment
prospects is planned, and the dividend policy is decided so that illiquidity is avoided.
 • Equity Evaluation The value of a company’s stock is largely defined by its dividend
policy, which represents the company’s growth and efficiency.
• Market Value Stability of Shares Investors who are happy with the dividend policy
are more likely to retain the stock for the long run. This results in stability and a
beneficial influence on the market value of the equities.
• Market for Preference Shares and Debentures Along with equity shares, a
corporation with a good dividend policy can borrow money by issuing preference
shares and debentures in the market.
• Degree of Control It aids the corporation in maintaining effective financial control. If
the corporation distributes the maximum profit as dividends, the company may run out
of capital for future chances.
• Tax Advantage When compared to the proportion of income tax levied, qualifying
dividends received as a capital gain have lower tax rates.

3.7 Factors affecting dividend policy:

Stability of earnings:

The nature of business has an important bearing on the dividend policy. Industrial units
having stability of earnings may formulate a more consistent dividend policy than those having
an uneven flow of incomes because they can predict easily their savings and earnings. Usually,
enterprise dealing in necessities suffer less from oscillating earnings than those dealing in
luxuries or fancy goods.

Age of corporation:

Age of the corporation counts much in deciding the dividend policy. A newly
established company may require much of its earnings for expansion and plant improvement
and may adopt a rigid dividend policy while, on the other hand, an older company can formulate
a clear cut and more consistent policy regarding dividend.
Liquidity of funds:

Availability of cash and sound financial position is also an important factor in dividend
decisions. A dividend represents a cash outflow, the greater the funds and the liquidity of the
firm the better the ability to pay dividend. The liquidity of a firm depends very much on the
investment and financial decisions of the firm which in turn determines the rate of expansion
and the manner of financing. If cash position is weak, stock dividend will be distributed and if
cash position is good, company can distribute the cash dividend.

Extent of share distribution:

Nature of ownership also affects the dividend decisions. A closely held company is
likely to get the assent of the shareholders for the suspension of dividend or for following a
conservative dividend policy. On the other hand, a company having a good number of
shareholders widely distributed and forming low-or medium-income group, would face a great
difficulty in securing such assent because they will emphasise to distribute higher dividend.

Needs for additional capital:

Companies retain a part of their profits for strengthening their financial position. The
income may be conserved for meeting the increased requirements of working capital or of
future expansion. Small companies usually find difficulties in raising finance for their needs of
increased working capital for expansion programmes. They having no other alternatives, use
their ploughed back profits. Thus, such companies distribute dividend at low rates and retain a
big part of profits.

Trade cycles:

Business cycles also exercise influence upon dividend policy. Dividend policy is
adjusted according to the business oscillstions. During the boom, prudent management creates
foos reserves for contingencies which follow the inflationary period. Higher rates of dividend
can be used as a tool for marketing the securities in an otherwise depressed market. The
financial solvency can be proved and maintained by the companies in dull years if the adequate
reserves have been built up.
Government policies:

The earnings capacity of the enterprise is widely affected by the change in fiscal,
industrial, labour, control and other government policies. Sometimes government restricts the
distribution of dividend beyond a certain percentage in a particular industry or in all spheres of
business activity as was done in emergency. The dividend policy has to be modified or
formulated accordingly in those enterprises.

Taxation policy:

High taxation reduces the earnings of the companies and consequently the rate of
dividend is lowered down. Sometimes government levies dividend-ta of distribution of
dividend beyond a certain limit. It also affects the capital formation. N India, dividends beyond
10% of paid-up capital are subject to dividend tax at 7.5%.

Legal requirements:

In deciding on the dividend, the directors take the legal requirements too into
consideration. In order to protect the interests of creditors an outsider, the companies Act 1956
prescribes certain guidelines in respect of the distribution and payment of dividend. Moreover,
a company is required to provide for depreciation on its fixed and tangible assets before
declaring dividends on shares. It proposes that dividend should not be distributed out of capital
in any case. Likewise, contractual obligation should also be fulfilled, for example, payment of
dividend on preference shares in priority over ordinary dividend.

Past dividend rates:

While formulating the dividend policy, the directors must keep in mind the dividend
paid in past years. The current rate should be around the average past rate. If it has been
abnormally increased the shares will be subjected to speculation. In a new concern, the
company should consider the dividend policy of the rival organization.
Ability to borrow:

Well established and large firms have better access to the capital market than the new
companies and may borrow funds from the external sources if there arises any need. Such
companies may have a better dividend pay-out ratio. Whereas smaller firms have to depend on
their internal sources and therefore they will have to built up good reserves by reducing the
dividend payout ratio for meeting any obligation requiring heavy funds.

Policy of control:

Policy of control is another determining factor is so far as dividends are concerned. If

the directors want to have control on company, they would not like to add new shareholders
and therefore, declare a dividend at low rate. Because by adding new shareholders they fear
dilution of control and diversion of policies and programs of the existing management. So they
prefer to meet the needs through retained earnings. If the directors do not bother about the
control of affair, they will follow a liberal dividend policy. Thus, control is an influencing
factor in framing the dividend policy.

Repayments of loan:

A company having loan indebtedness are vowed to a high rate of retention earnings,
unless one other arrangement is made for the redemption of debt on maturity. It will naturally
lower down the rate of dividend. Sometimes, the lenders mostly institutional lenders put
restrictions on the dividend distribution still such time their loan is outstanding. Formal loan
contracts generally provide a certain standard of liquidity and solvency to be maintained.
Management is based to hour such restrictions and to limit the rate of dividend payout.

Time for payments of dividend:

When should the dividend be paid is another consideration. Payment of dividend means
outflow of cash. It is, therefore, desirable to distribute dividend at a time when is least needed
by the company because there are peak times as well as lean periods of expenditure. Wise
management should plan the payment of dividend in such a manner that there is no cash outflow
at a time when the undertaking is already in need of urgent finances.
Regularity and stability in dividend payment:

Dividends should be paid regularly because each investor is interested in the regular
payment of dividend. The management should, in spite of regular payment of dividend,
consider that the rate of dividend should be all the most constant. For this purpose sometimes
companies maintain dividend equalization fund.

3.8 objectives of dividend policy:

The main objective of a dividend policy is to maximize the financial benefits of a firm’s
earnings, balancing dividend payouts to shareholders and retained earnings, which are crucial
for a company’s growth.

In addition to the main objective, other objectives are equally important for dividend policy.
These include;

• A dividend policy indicates a company’s current and future profitability in the market.
A consistent dividend payment can convey a positive impression of a company’s
financial health, attracting more investors.
• The policy must also consider the company’s plans for the future, such as growth and
debt repayment. Retaining a portion of profits aids in financing these needs without
relying heavily on external borrowings.
• To maintain investor confidence and market reputation, companies frequently pursue a
stable dividend policy despite fluctuating profits. Investors may feel safer when
dividends are stable, especially when the market is volatile.
• Different investors have different investment preferences. Some prefer dividend
payouts as a source of income, while others prefer capital gains. A well-balanced
dividend policy can accommodate a diverse investor base, increasing the company’s
appeal to prospective investors.

Providing sufficient financing:

As dividend policy has a direct bearing on retained earnings of a firms, the first
objective of its dividend policy should be to ensure that retained earnings are sufficient enough
to finance the investment requirements of the firm.
Return to shareholders:

The second objective of a dividend policy should be to ensure a reasonable rate of return
to shareholders in the form; of dividend in order to satisfy their desire for current income and
develop their confidence in the firm’s successful operations.

Wealth maximization:

The third objective of a firm’s dividend policy should be to maximize the shareholders
wealth in the long run through retention of earnings and their investment in profitable projects.

3.9 Dividend Theories:

There are conflicting opinions regarding impact of dividend decision on the value of firm. The
dividend theories are broadly classified into two groups i.e.

➢ Theories of relevance
➢ Theories of irrelevance

Theories of relevance (Relevance concept of dividend):

Theses theories associated with Walter and Gordon models hold that the
dividend policy of a firm has a direct effect on the position of the firm in the stock exchange.
Because higher dividend increases the value of shares, whereas low dividend decreases its
value in the market due to the fact that dividend actually presents information relating to the
profit earnings capacity or profitability of a firm to the investors. Two models representing this
argument may be discussed below:

Walter’s Model:

Professor James E. Walter argues that dividend policy is an active variable that
influences share price and also value of the firm. Both dividend policy and investment policy
are inseparable business decisions. In determining the significance of dividend policy, Walter
holds that the relationship between the firm’s internal rate of return ( r ) and cost of capital (k)
is crucial. If the r ≥ k, the firm should retain the earnings. It should distribute its earnings if r ≤
k so that the shareholders can make higher earnings by investing elsewhere. Thus Walter has
related dividend policy with investment opportunities of the firm. Where firm has sample
investment opportunities promising higher return than cost of capital, it should retain earnings.
Such a firm is called growth firm. Optimum dividend policy for such a firm would be no
dividend distribution.

On the contrary, If a firm lacks in such investment opportunities as could assure rate of
return higher than cost of capital, it should distribute its earnings. Center – per cent distribution
of earnings constitutes the optimum dividend policy of such firm called declining firm.

There is another category of firm whose internal rate of return is equal to cost of capital.
Such firm is known as normal firm. In such firm, shareholders are indifferent between retention
and distribution of earrnings.

Walter’s Formula:

The following formula can be applied to determine the market price per share under Walter’s
Model.

Market price per share (p) = D+ r/k x (E-D)

Where,

D = Dividend per share

R = Rate of return on investment by firm

K= Cost of capital

E= Earnings per share.

Gordon’s Model:

Myron J. Gorden has also put forth a model arguing for relevance of dividend decision to
valuation of firm. The model is founded on the following assumptions:

• The firm is an equity. No external financing is used and investment programmes are
financed exclusively by retained earnings.
• The internal rate of return (r) and appropriate discount rate (k) for the firm are constant.
• The firm has perpetual life and its stream of earnings are perpetual.
• The corporate taxes do not exist.
• The retention ratio (b) once decided upon is constant. Thus the growth rate (g) (g=br)
is also constant.
• Cost of capital (k) is greater than the growth rate (g).

Like Walter, relevance of dividend policy to valuation of firm has been held by Gordon. He is
of the view that investors always prefer dividend as current income to dividend to be obtained
in future because they are rational and would be non- chalant to take risk. The payment of
current dividends completely removes any possibility of risk. They would lay less emphasis on
future dividends as compared to the current dividend. This is why when a firm retains its
earnings, its share value receives set back. Investors preference for current dividend exists even
in situation where r=k. this sharply contrasts with Walter’s model which holds that investors
are indifferent between dividends and retention when r=k.

Gordon’s Formula:

Gordon has provided the following formula to determine the market value of a share.

Market value per share (p) = = D (or) E (1-b)

k-g k-br

where,

D= Dividend per share

K= Cost of capital
g = Growth rate

E= earnings per share

b=Retention ratio

r= Rate of return.

Theories of irrelevance (Irrelevance concept of dividend):

These theories associated with Modigliani and Miller hold that dividend policy has no
effect on the share prices of a firm and is therefore of no consequence. Capital gains. They are
basically interested in getting higher return on their investments. if the firm has adequate
investment opportunities giving a higher rate of return than the cost of retained earnings, the
investors will be satisfied with the firm for retaining the earnings. However, in case, the
expected return on projects is less than what it would cost, the investors would prefer to receive
dividends. So, it is needless to mention that a dividend decision is nothing but as financing
decision. In short, if the firm has profitable investment opportunities, it will retain the earnings
for investment purposes or if not, the said earnings should be distributed by way of dividend
among the investors/ shareholders.

Modigliani-Miller hypothesis (M.M.Model):

Modigliani-miller argue that value of a firm is determined by its earnings potentiality

and investment pattern and not by dividend distribution. According to them, the dividend
decision is irrelevant and it does not affect the market value of equity shares, because the
increase in wealth of shareholders resulting from dividend payments will be offset
subsequently when additional share capital is raised. If the additional capital is raised in order
to meet the funds requirement, it will dilute the existing share capital which will reduce the
share value to the original position.
Determination of market price of share:

Under M.M. model , the market price of a share at the beginning of the period (po) is equal to
the present value of dividends received at the end of the period plus the market price of the
share at the end of the period.

Po= Present value of Dividends received + Market price of the share at the end of the period.

This can be expressed as follows:

Po = D1+p1

1+ke

The market price of the share at the end of the period (P1) can be ascertained as follows:

P1 = Po (1+ke) – D1

Where,

P1= Market price per share at the end of the period

Po= Market price per share at the beginning of the period i.e., current market price.

Ke= Cost of equity capital

D1= Dividend per share at the end of the period.

ARTICLE:1

Miller, M.H., & Modigliani, F. (1961):

This research aims to examine the factors which affect dividend policy for nonfinancial UK
companies in the year 2007. In particular, the research examines the extent to which corporate
governance factors affect corporate dividend policy. The factors are classified into two parts
which are corporate governance factors and firm characteristics. Corporate governance factors
include board size, board independence and audit type. On the other hand, firm characteristics
are firm size, profitability, debt level, growth, risk, industry type and tangibility. The sources
used to collect the data for this study are the Forecasting Analysis and Modelling Environment
(FAME) database and annual reports. Multiple regression model is used to analyze the data.
Based on the sample of 90 nonfinancial UK companies, it is found that corporate governance
factors do affect the dividend policy. It seems that board independence is one of the important
factors which drive firms to pay dividends. Furthermore, some of the firm characteristics have
also influenced the dividend policy decision among the non-financial UK firms.

ARTICLE;2

Alli, K.L., Khan, A.Q., & Ramirez, G.G. (1993):

This paper re-examines the dividend policy issue by conducting a simultaneous test of the
alternative explanations of corporate payout policy using a two-step procedure that involves
factor analysis and multiple regression. Several new proxies for theoretical attributes that have
appeared in the literature are introduced, including the role of managerial dimensions in
determining dividend policy. Strong support is found for the transaction cost/residual theory of
dividends. pecking order argument, and the role of dividends in mitigating agency problems.
Strong support is also found for the role of managerial consideration in affecting the firm's
payout policy; specifically, firms that maintain stable dividend policies and firms that enjoy
financial flexibility pay higher dividends. The results appear to support the tax clientele
argument.
ARTICLE:3

Allen, F., & Michaely, R. (1995).

This chapter discusses the dividend policy that is crucial for areas of financial economics. Five
empirical observations have played an important role in discussions of dividend policy: (1)
corporations typically pay out a significant percentage of their earnings as dividends. (2)
Historically, dividends have been the predominant form of payout; share repurchases were
relatively unimportant until the mid1980s. (3) Individuals in high tax brackets receive large
amounts in dividends and pay substantial amounts of taxes on these dividends. (4) corporations
smooth dividends. (5) The market reacts positively to announcements of dividend increases
and negatively to announcements of dividend decreases. Miller and Modigliani have showed
that with perfect and complete capital markets, a firm's dividend policy will not affect its value.
The basic premise of their argument is that firm value is determined by choosing optimal
investments. The net payout is the difference between earnings and investment, and is simply
a residual. The chapter focuses on the importance of taxes, and on the reconciliation of the first
three empirical observations. The basic aim of the tax-related literature on dividends has been
to investigate whether the firms that pay out high dividends are less valuable than firms that
pay out low dividends.

ARTICLE:4

Akhigbe, A., & Madura, J. (1996).

Substantial research has been conducted to determine the signal that results from dividend
initiations and omissions. Our study extends from previous research by measuring the long-
term valuation effects following dividend initiations and omissions. We find that firms
initiating dividends experience favorable long-term share price performance. Conversely, firms
omitting dividends experience unfavorable long-term share price performance. The long-term
valuation effects resulting from dividend initiations are more favorable for firms that that are
smaller, that overinvest, and that had relatively poor performance prior to the initiations. The
long-term effects resulting from dividend omissions are more unfavorable for large firms and
for firms experiencing relatively large dividend omissions.
ARTICLE:5

Holder, M. E., Langrehr, F. W., & Hexter, J.L. (1998).

This paper investigates the relationship between the dividend-policy decisions and investment
decisions of a firm. Recent literature proposes a theory that links the two decisions. This link is
stakeholder theory, which views the firm as a nexus of contracts and includes both investors and
non-investors as stakeholders of the firm. By using a proxy for the level of non-investor stakeholder
influences, our research finds that a relationship does exist. This is indicated by the firm having a
lower dividend-payout ratio, which indicates its ability to make good on the implicit claims of non-
investor stakeholders.

ARTICLE:6

Baker, H. K., & Powell, G. E. (1999).

This study investigates the views of corporate managers about the relationship between dividend
policy and value; explanations of dividend relevance including the bird-in-the-hand, signaling, tax-
preference, and agency explanations; and how firms determine the amount of dividends to pay. We
also examine whether the responses on these topics differ among three industry groups
(manufacturing, wholesale/retail trade, and utilities). We obtain data from a mid-1997 mail survey
sent to 603 chief financial officers of U.S. firms listed on the NYSE. Based on 198 usable responses,
the empirical results show that most survey respondents believe that dividend policy affects firm
value. Of the four explanations for dividend relevance, the respondents generally express the highest
level of agreement with statements about signaling. The results also show that managers are
concerned about the continuity of dividends when setting dividend payments. Finally, the
respondents from the three industry groups surveyed generally hold similar views about dividend
policy issues.
ARTICLE:7

Baker, H. K., & Powell, G. E., & Veit, E. T. (2002).

We survey managers of Nasdaq firms that consistently pay cash dividends to determine their
views about dividend policy, the relationship between dividend policy and value, and four
common explanations for paying dividends. The evidence shows that managers stress the
importance of maintaining dividend continuity and widely agree that changes in dividends
affect firm value. Managers give the strongest support to a signaling explanation for paying
dividends, weak to little support for the tax-preference and agency cost explanations, and no
support to the bird-in-the-hand explanation. The study provides new evidence about how
managers view dividend life cycles and residual dividend policy.

ARTICLE:8

AI-Deehani, T. M. (2003).

Ever since the work of John Lintner (1956), followed by the work of Miller and Modigliani
(1961), dividend policy remains a controversial issue. Some of the questions that remain
unanswered include: Does dividend policy affect value? What are the factors that determine
dividend policy? Is dividend policy determined dependently or independently? A
comprehensive survey project on dividend policy in Kuwait was conducted and two papers
were produced. The first paper focused on the relationship of dividend policy to investment
and financing policies, see Al‐ Deehani and Al‐Loughani (2002). This paper is a part of that
project. It presents empirical effort to the area of dividend policy determinants in Kuwait as an
emerging market. Based upon a result of a questionnaire survey, the paper will highlight (1)
top management’s perception of value‐relevant and value‐irrelevant determinants of dividend
policy, and (2) determine whether managers in different industries share similar views about
these determinants. The paper is organized in the following manner: first the determinants of
dividend policy are discussed through a review of the relevant literature. This is followed by
the research methods stating the issues of concern to this study. The remainder of the paper
discusses the results through the analysis of managers’ perceptions of determinants and a cross‐
sectional analysis. The paper ends with a summary and the conclusions drawn from the study.
ARTICLE:9

Aivazian, V., Booth, L., & Cleary, S. (2003).

The hypothesis that dividend policy serves as a signaling mechanism and also serves to control
managerial opportunism is usually supported by empirical studies showing that firms in
developed countries (e.g. the USA) smooth their dividends as noted by Lintner (Am. Econ.
Rev. 46 (1956) 97). However, the theoretical justification for these results largely stems from
models based on arms length contracting in capital markets. In contrast, most emerging markets
have a bank centered financial system, where contracting is not normally at arms length.
Consequently, this paper compares the dividend policy of companies from eight emerging
markets to the policies adopted by 100 US firms over the same period. Firms in these emerging
markets have more unstable dividend payments than their US counterparts. Regression results
indicate that dividends are much less sensitive to past dividends. These results support the
substitute view of dividend policy on the premise that the institutional structures of these
developing countries make dividends a less viable mechanism for signaling and for reducing
agency costs than for their US counterparts operating in more highly developed arms length
capital markets.

ARTICLE:10

Deeptee, P.R., & Roshan, B. (2009).

Since decades, many researchers have argued that the dividend policy decisions of firms are
very important mainly due to the signaling effect they have on the firm’s future performance.
The paper presents empirical findings on the signaling effect of dividends while taking into
account the different theories on dividend policy.
ARTICLE:11

Shao, L., Kwok, C. C., & Guedhami, O. (2010).

This interdisciplinary study examines how national culture affects corporate dividend policies.
The dividend puzzle is one of the most studied, yet unresolved, issues in financial economics.
Prior theoretical and empirical research has suggested several explanations of the dividend
puzzle that are rooted mainly in agency, asymmetric information, “bird in hand”, and pecking
order theories. The main intuition behind our analysis is that dividend policy may be
determined not only by an objective assessment of the severity of agency and asymmetric
information problems within a firm, but also by management's and investors’ subjective
perceptions of these problems, which hinge on their national culture. Using Schwartz's national
culture dimensions, Conservatism and Mastery, we find that Conservatism is positively related
and Mastery negatively related to dividend payouts for a sample of 27,462 firm-years from 21
countries between 1995 and 2007. These effects are robust to controls for a wide variety of
other determinants of dividend policy – including investor protection, stock market
performance, financial system configuration, tax advantage, economic development, and
dividend catering premium – and to alternative culture proxies and sub-period windows. Our
findings that national culture affects perceptions of and responses to agency and information
asymmetry have important implications for policymakers and multinational enterprises.

ARTICLE:12

AI-Hasan, M.A., Asaduzzaman, M., & Karim, R. A. (2013).

The most debated issue in the field of finance is over the effect of dividend policy on market
price per share. There are huge literatures for and against this wisdom. The current study has
been undertaken aiming at evaluating the effect of dividend policy on market price of share in
the context of Bangladesh. The study has covered secondary data and analyzed the data by
employing descriptive statistics, correlation and multiple regression models. It has tested
hypothesis by using F test. The study has found that the effect of dividend payout is more on
market price than retention. This dependency is significant at 1%. Finally, the paper concludes
that the findings over the effect of dividend policy on market price supports the relevant theory
of dividend policy i.e. Walter’s model and Gordon’s model.
ARTICLE:13

Kazmierska-Jozwiak, B. (2015).

Dividend policy has been still a controversial issue in corporate finance. The question, when
and why do firms pay dividends, is still valid. Vast literature has examined the dividend policies
of firms from developed countries, especially from U.S. Relatively little research has yet been
published examining the dividend policies of companies from emerging countries. The main
goal of this paper is to examine cash dividend payments of Polish listed companies. In this
study, panel data analysis is applied to investigate the determinants of dividend policies of
Polish companies. The paper also explains the impact of different factors on dividend policy
on Polish market.Moreover, it tries to examine whether the same factors (profitability,
liquidity, size, leverage of the firm) affect dividend payout decisions on Polish market as on
developed countries.

ARTICLE:14

Booth, L., & Zhou, J. (2017).

In a “perfect” market, Miller and Modigliani's celebrated dividend irrelevance argument holds,
whereby a dividend payment or omission is identical in impact to changes in a firm's share
structure. Consequently, the dividend payment itself is irrelevant to valuation; what matters is
the firm's free cash flow. In the real world, the institutional and financial structure of markets
matters. In the United States, explanations of actual dividend policy usually stress transaction
costs, information costs engendering signaling and agency costs, taxes, and the legal system.
Under the U.S. financial system many of these factors tend to be similar across firms, so that it
can be difficult to disentangle their effects. However, it is to be expected that in a financial
system organized differently results from the United States may not hold, so we may be able
to identify the importance of factors largely suppressed in the United States. In this selective
review we look at results from both comparative and international studies of dividend policy.
As might be expected, we find that institutional structure—including a country's financial
system, institutions, culture, and industrial organization—is important in determining dividend
policy.
ARTICLE:15

Koo, D. S., Ramalingegowda, S., & Yu, Y. (2017).

This study examines how financial reporting quality affects corporate dividend policy. We find
that higher quality reporting is associated with higher dividends. This positive association is
more pronounced among firms with more severe free cash flow problems and among firms
with higher ownership by monitoring-type institutional investors. Further analysis of the
relation between reporting quality and under−/over-payment of dividends suggests that
reporting quality largely mitigates underpayment of dividends. Additionally, both a granger
causality test and a difference-in-difference analysis of dividend changes around a quasi-
exogenous reporting event yield evidence consistent with the direction of causality going from
financial reporting to dividends. Overall, these findings are consistent with financial reporting
quality acting as a governance mechanism that induces managers to pay dividends by
disciplining free cash flow problems. Our findings support the view that dividends are the result
of enhanced monitoring (Jensen 1986; La Porta, Lopez-de-Silanes, Shleifer, and Vishny 2000).

ARTICLE:16

Iftikhar, A. B., Raja, N. U.D. J., & Sehran, K. N. (2017).

Dividend is the part a firm’s total net profit earned during a specified period of time. The net
profit of a firm is divided among investors (the shareholders of the firm) according to their
respective share of investment. Dividend policy is the most important dimension of a firm
which directly influences stock prices of a firm. The firm’s Board of Directors makes and
implements its dividend policy with regards to profit management, distribution of profit among
shareholders and to retain a part of profit in company account to avail some better investment
opportunities in future. This study focuses on analyzing the impact of dividend policy on the
stock prices a firm. To study the impact of dividend policy on the stock prices the banking
sector firms were selected. The 10 year (2005 to 2014) financial data of five banks were
collected from their financial reports and websites of State Bank of Pakistan and Karachi Stock
Exchange. The results revealed that a rational dividend policy plays an important role in
attracting reputable investors and contributes a lot in strengthening capital structure of a firm.
The study was initiated by literature review conducted around relevant texts and journals to get
awareness about previous research in the area. To get a critical view of dividend policies of
different firms and relevant impact on stock prices, a large scale secondary data was taken
about capital structure and relevant dividend policies of these firms. Secondary data was
gathered through internet and personal visits of selected sample of respondents. The findings
of the study revealed that dividend policies of a firm might have a positive and desirable impact
on stock prices of a firm if devised and implemented after in-depth study of capital structure
of the market and dividend policies of different firms. The results of the study are expected to
help business institutions, business students and researchers to understand a distinct
interdependence between dividend policies and stock prices of a firm.

ARTICLE:18

Kannadhasan, M., Aramvalarthan, S., Balasubramanian, P., & Gopika, A. (2017).

Corporate dividend policy has been an area of concern in financial literature for quite a long
time. Substantial research has been carried out on dividend policy leading to the emergence of
various theories. Majority of this research has been carried out with respect to developed
countries. There are only a limited number of empirical investigations on the dividend policy
of companies in emerging economies such as India. Identifying and understanding the key
factors that motivate the managers to distribute dividends is important for investors. The study
analyses the determinants of dividend policy of manufacturing companies in India using panel
data. Financial leverage, profitability, and firm size determine the dividend policy of the firm.
Growth of the firm has an effect on dividend policy in the short run. To best of the knowledge,
no study has done on this topic using Panel ARDL in Indian context.
ARTICLE:19

Hussain, H., Md-Rus, R., & AI-Jaifi, H. A. A. (2017).

The current study aimed at reviewing the theoretical and empirical research regarding board
size and dividend policy. The role of board has been emphasized in the previous studies in
monitoring the managerial decisions. In terms of the methodology, the current study has
reviewed and identified most of previous studies on the role of board size and dividends. The
results are mixed regarding the effectiveness of board depending on its size. The results of the
previous studies are mixed and alternative views are reported based on agency theory and
resource dependency theories. Future studies may focus on the composition of boards in terms
of their education, knowledge and experience along with the board size.

ARTICLE:20

Jabbouri, I., & Attar, A.E. (2018).

This paper discusses the theories that shape the debate on dividend policy with an emphasis on
emerging markets and recent empirical findings. The studies investigated in this research
perceived multiple explanations for paying dividends as being valid and credible, and
contribute to explaining why firms pay dividends. The dominance of one theory over another
and the contradicting evidence in favour or against a specific theory are largely influenced by
the testing environment. In some cases, the theories are contradicting, in others, they are
complementary. Divergence in the outcomes and findings of the empirical research that tries
to confirm or refute these theories deepens, further, the complexity of the dividend puzzle. This
paper finds that, while researchers contribute to empirical evidence and build knowledge to
help solve the dividend controversy, the results are inconclusive, contradicting, and none is
universally accepted. This leaves ample room for further thorough research on dividend policy.
 CHAPTER – IV

RESEARCH METHODOLOGY
Meaning:

Research is an art of scientific investigation. The advanced learner’s dictionaries of

current English lay down the meaning of research as, “a careful investigation (or) inquiry
especially through search for new facts in any branch of knowledge”.

Definition:

Reedmen and Mary research as a “systematic effort to gain knowledge”.

Dividend yield ratio:

The dividend yield ratio is a financial metric that expresses the annual dividend income
of an investment as a percentage of its current market price per share. In simpler terms, it shows
the return on investment in the form of dividends that an investor can expect to receive from
holding a particular stock.

Dividend payout ratio:

The amounts of dividends paid to shareholders in relation to the total amount of net
income the company generates. In other words, the dividend payout ratio measures the
percentage of net income that is distributed to shareholders in the form of dividends.

Dividend growth ratio:

The dividend growth ratio calculates the percentage increase in dividends from one
period to another. A positive dividend growth ratio indicates that a company has increased its
dividend payments, while a negative ratio suggests a decrease.

Dividend to net income ratio:

Dividend to net income ratio shows what proportion of a company's net income is being
distributed to shareholders in the form of dividends. A higher ratio indicates that a significant
portion of the company's profits is being returned to shareholders, while a lower ratio suggests
that the company is retaining more of its earnings for other uses such as reinvestment in the
business.
Dividend to asset ratio:

Dividend to asset ratio provides insight into how much of a company's asset base is
being used to generate dividend payments. A higher ratio suggests that a significant portion of
the company's assets is being used to fund dividends, potentially leaving fewer resources for
other purposes such as reinvestment in the business or debt reduction.

Dividend to equity ratio:

Dividend to equity ratio shows the proportion of a company’s equity that is distributed
to shareholders in the form of dividends. A higher ratio indicates that a larger portion of the
shareholder’s equity is being used to fund dividend payments. Investors and analysts use the
dividend to equity ratio to assess the company’s dividend distribution relative to its equity base.
A higher ratio might suggest that the company is distributing a significant portion of its equity
as dividends, which could be attractive to income- seeking investors.

Dividend to debt ratio:

Dividend to Debt Ratio to assess the company's dividend distribution in relation to its
debt obligations. While a company may use debt for various purposes, including funding
operations and expansion, a high Dividend to Debt Ratio might signal that a significant portion
of debt is allocated to dividend payments.

Dividend to revenue ratio:

Dividend to Revenue Ratio to assess how much of the company's income is being
returned to shareholders in the form of dividends. While a higher ratio may be attractive to
income-seeking investors, it's essential to consider the overall financial health of the company,
its growth prospects, and its ability to sustain dividend payments over time. A balance between
dividend payouts and retaining earnings for future growth is often crucial for a company's long-
term success.
Dividend to capital expenditure ratio:

Dividend to Capital Expenditure Ratio to assess how much of the company's capital
investment is being allocated to dividend payments. While a higher ratio may be appealing to
income-seeking investors, it's important to consider the company's overall financial strategy.
A high ratio might indicate a focus on returning capital to shareholders rather than reinvesting
in the business, which could impact future growth prospects. Balancing dividend payouts with
necessary capital expenditures is crucial for maintaining and enhancing the company's
competitiveness and sustainability.

Dividend per share:

Dividend per share as an indicator of a company’s dividend policy and its willingness
to share profits with shareholders. It is essential for income-seeking investors who rely on
dividends for a portion of their returns. Additionally, DPS can be compared over time to assess
whether a company is increasing, decreasing, or maintaining its dividend payments.

Dividend to book value ratio:

The Dividend to Book Value Ratio to assess how much of the company's net worth is
being returned to shareholders in dividends. A higher ratio may indicate that a larger portion
of the company's book value is being used to fund dividend payments.

Dividend market capitalization ratio:

The Dividend Market Capitalization Ratio to assess how much of the company's overall
market value is being returned to shareholders as dividends. A higher ratio may suggest that a
significant portion of the company's market capitalization is being used to fund dividend
payments.

Dividend to price earnings ratio:

The Dividend to P/E Ratio to assess how much of the earnings per share is being
returned to shareholders in the form of dividends relative to the stock's valuation. A higher
ratio may indicate that a larger portion of earnings is being distributed to shareholders as
dividends.
Walter model:

The Walter Model, also known as the Dividend Discount Model (DDM), is a valuation
model used in finance to determine the intrinsic value of a company's stock based on its
expected future dividends. The Walter Model suggests that the value of a company is the
present value of all its future dividends. The basic idea is that investors value a stock based on
the cash returns they expect to receive in the form of dividends.
 CHAPTER – V

ANALYSIS OF INTERPRETATION
ANALYSIS AND INTERPRETATION:

5.1 DIVIDEND YIELD

A high dividend yield can indicate that a stock is providing a substantial return in the
form of dividends relative to its current market price. However, investors should be cautions
and assess the sustainability of the dividend, as extremely high yields may be a result of a
declining stock price or financial instability.

Stocks with low or no dividend yields are often associated with growth-oriented
companies. These firms may prefer to reinvest earnings back into the business for expansion
rather than distributing them as dividends. Investors in such stocks are typically relying on
capital appreciation rather than regular income.

Dividend yield = Dividend per share x100

Stock price

TABLE 5.1

Dividend Yield
Dividend
Years Dividend per Share Stock Price Yield (%)

2019-20 2.84 3.79 74%

2020-21 2.92 3.79 77%

2021-22 3.04 3.79 80%

 CHART 5.1

DIVIDEND YIELD
4 3.79 3.79 3.79

3.5
3.04
2.84 2.92
3

2.5

1.5

1 74% 77% 80%

0.5

0
2019 2020 2021

Dividend per Share Stock Price Perentage

INTREPRETATION:

According to the table above, the dividend yield for 2021-2022 is high at 80%, while
the lowest proportion is 74% for 2019-20.
5.2 DIVIDEND PAYOUT RATIO

The dividend payout ratio is often considered healthy when it ranges between 40-60%.
This suggests that a company is returning a significant portion of its earnings to shareholders
while retaining enough for reinvestment and future growth. However, optimal ratios can vary
by industry and company circumstances.

Dividend payout ratio = Dividend per share x 100

Earnings per share

Dividend payout ratio diluted:

TABLE 5.2

Dividend Payout Ratio Diluted

Dividend
Dividend Earnings payout ratio in
Year per share per share diluted (%)

2019-20 2.84 5.25 54.09%

2020-21 2.92 3.5 83.42%

2021-22 3.04 5.34 56.92%

 CHART 5.2

DIVIDEND PAYOUT RATIO DILUTED

5.25 5.34

4
3.5 DIVIDEND PAYOUT RATIO DILUTED
3.04 Dividend per share
2.84 2.92
3 DIVIDEND PAYOUT RATIO DILUTED
Earnings per share
DIVIDEND PAYOUT RATIO DILUTED
2 percentage

1 83.42%
54.09% 56.92%

0
2019 2020 2021

INTREPRETATION:

According to the above table, the diluted 2020-2021 dividend yield ratio is highest at
83.42%, while the lowest proportion is 54.09% for the year 2019-20.
Dividend payout ratio basic:

TABLE:5.2

Dividend Payout Ratio Basic

Dividend
Dividend per Earnings per payout ratio
Year share share in basic (%)

2019-20 2.84 5.28 53.78%

2020-21 2.92 3.51 83.19%

2021-22 3.04 5.38 56.50%

CHART :5.2

DIVIDEND PAYOUT RATIO BASIC

6
5.28 5.38

4 Dividend Payout Ratio Basic Dividend

3.51 per share
2.92 3.04 Dividend Payout Ratio Basic Earnings
2.84
3
per share
Dividend Payout Ratio Basic
2 percentage

1 83.19%
53.78% 56.50%

0
2019 2020 2021

INTREPRETATION:

According to the above table, the basic 2020-2021 dividend yield ratio is highest at
83.19%, while the lowest proportion is 56.50% for the year 2021-22.
5.3 DIVIDEND GROWTH RATE:

The common thumb rule is to look for companies with a dividend growth rate equal to
or higher than the inflation rate. This help ensure that your investment maintains or increases
its real purchasing power over time. Additionally, a consistent track record of dividend growth
can be a positive indicator of a company’s financial health and stability. However, it’s essential
to consider other factors like the company’s overall financial health, industry trends, and
management quality before making investment decisions.

Dividend growth rate = Dividend in year 2 – Dividend in year 1 x100

Dividend in year 1

TABLE:5.3

Dividend Growth
Rate
Dividend
Dividend in growth
Year Dividend in year 2-1 year 1 rate (%)

2019-20 0.2 2.64 4.10%

2020-21 0.08 2.84 2.81%

2021-22 0.12 2.92 7.57%

 CHART:5.3

DIVIDEND GROWTH RATE

3 2.84
2.64

2.5

2 Dividend Growth Rate

Dividend in year 2-1

1.5 Dividend Growth Rate

Dividend in year 1

1 Dividend Growth Rate

Percentage

0.5
0.2
0.08 0.12 7.57%
4.10% 2.81% 0
0
2019 2020 2021

INTERPRETATION:

According to the above table, the dividend growth rate is highest in 2021–2022, at 7.57%, and
lowest in 2020–21, at 2.81%.
5.4 DIVIDEND TO NET INCOME RATIO:

The dividend to net income ratio is not a widely recognized financial metric. However,
the dividend payout ratio, which is the proportion of earnings paid out as dividends is more
commonly used. A general rule of thumb is that a sustainable payout ratio is usually around
40-60% of net income. This allows companies to retain enough earnings for growth and to
handle economic downturns. Keep in mind that these are general guidelines, and the
appropriate ratio can vary by industry and specific company 61ircumstance.

Dividend to net income ratio = Dividend per share

Net income per share

TABLE:5.4

Dividend To Net Income

Dividend to
Dividend per Net Income net income
Year share per share Ratio

2019-20 2.84 2213 1.28

2020-21 2.92 1415 2.06

2021-22 3.04 2146 1.41

 CHART:5.4

DIVIDEND TO NET INCOME

2500
2213
2146
2019 2020 2021
2000

Year

1500 1415

Dividend To Net Income Dividend

per share
1000

Dividend To Net Income Net

500 Income per share

2.84 1.28 2.92 2.06 3.04 1.41 Dividend To Net Income Ratio
0
1 2 3

INTERPRETATION:

As to the above table dividend to net income, the ratio is 2.06 at its best in 2020–21 and 1.28
at its lowest in 2019–20.
5.5 DIVIDEND TO ASSET RATIO:

The dividend to asset ratio is not as commonly used as some other financial metrics,
but it can be calculated by dividing dividends by total assets. There isn’t a widely accepted rule
of thumb for this ratio, as its relevance can vary across industries.

Dividend to asset ratio = Dividend per share

Total asset per share

TABLE:5.5

Dividend To Asset Ratio

Dividend per Total Assets per Dividend to
Year share share asset ratio

2019-20 2.84 32805 8.65

2020-21 2.92 31824 9.17

2021-22 3.04 34027 8.93

 CHART:5.5

DIVIDEND TO ASSET RATIO

40000
34027
35000 32805
31824
30000

25000

20000

15000

10000

5000 2019 2020 2021

2.84 2.92 3.04 8.65 9.17 8.93
0
Year Dividend per share Total Assets per share Ratio

Series1 Series2 Series3

INTERPRETATION:

Based to the above table, the dividend to asset ratio is at lowest point in the year 2019–
2020 (8.65) and at its highest point in the year 2020–21 (9.17).
5.6 DIVIDEND TO EQUITY RATIO:

The dividend to equity ratio is a measure of how much of a company’s equity is

distributed as dividends. There isn’t a universal rule of thumb for this ratio, but it’s often
considered in the context of a company’s dividend policy and financial health.

Dividend to equity ratio = Dividend per share

Total equity per share

TABLE:5.6

Dividend To Equity Ratio

Dividend per Total equity per Dividend to
Year share share equity ratio

2019-20 2.84 16133 1.76

2020-21 2.92 14973 1.95

2021-22 3.04 16451 1.84

 CHART:5.6

DIVIDEND TO EQUITY RATIO

18000
16133 16451
16000 14973

14000
Year
12000

10000 Dividend To Equity Ratio Dividend

per share
8000 Dividend To Equity Ratio Total equity
per share
6000
Dividend To Equity Ratio Ratio
4000
2019 2020 2021
2000
2.84 1.76 2.92 1.95 3.04 1.84
0
1 2 3

INTERPRETATION:

The dividend to equity ratio is 1.95 in 2020-21 according to the table above, while the lowest
ratio is 1.76 in 2019-20.
5.7 DIVIDEND TO REVENUE RATIO:

The dividend to revenue ratio is not a standard financial metric, and there isn’t a widely
recognized rule of thumb for it. Typically, investors and analysts focus more on metrics like
the dividend payout ratio (dividends as a percentage of net income) or dividend yield
(dividends as a percentage of the stock price).

Dividend to revenue ratio = Dividend per share

Total revenue per share

TABLE:5.7

Dividend To Revenue Ratio

Dividend Total Revenue per Dividend to
Year per share share revenue ratio

2019-20 2.84 21390 1.32

2020-21 2.92 17858 1.63

2021-22 3.04 19628 1.54

 CHART:5.7

DIVIDEND TO REVENUE RATIO

25000
21390
19628
20000
17858
Year

15000
Dividend To Revenue Ratio
Dividend per share

10000 Dividend To Revenue Ratio Total

Revenue per share
Dividend To Revenue Ratio Ratio
5000
2019 2020 2021
2.84 1.32 2.92 1.63 3.04 1.54
0
1 2 3

INTERPRETATION:

As shown in the table, the dividend to revenue ratio in 2020-21 is higher than 1.63,
while it’s lower than 1.32 in 2019-20.
5.8 DIVIDEND TO DEBT RATIO:

The dividend to debt ratio is not a standard financial metric, and there isn’t a widely
recognized rule of thumb specifically for this ratio. However, analysts and investors often
assess a company’s dividend payments in relation to its debt levels through metrics like the
dividend payout ratio and debt-to-equity ratio.

Dividend to debt ratio = Dividend per share

Total debt per share

TABLE:5.8

Dividend To Debt Ratio

Dividend Total debt per Dividend to
Year per share share debt ratio

2019-20 2.84 7819 3.63

2020-21 2.92 7010 4.16

2021-22 3.04 6831 3.04

 CHART:5.8

DIVIDEND TO DEBT RATIO

9000
7819
8000
7010 6831
7000 Year

6000
Dividend To Debt Ratio Dividend per
5000 share

4000 Dividend To Debt Ratio Total debt oer

share
3000
2019 2020 2021
2000 Dividend To Debt Ratio Ratio

1000
2.84 3.63 2.92 4.16 3.04 3.04
0
1 2 3

INTERPRETATION:

The dividend to debt ratio in 2020-21 is a high 4.16, while the lowest ratio in the year
of 2 is 3.04, as shown in the above table.
5.9 DIVIDEND TO CAPITAL EXPENDITURE RATIO:

The dividend to capital expenditure ratio is not a standard or widely recognized

financial metric, and there isn’t a specific rule of thumb for it. However, investors and analysts
often assess a company’s dividend payments in relation to its capital expenditures to understand
how much of its cash is being used for investments in assts compared to returning value to
shareholders.

Dividend to capital expenditure ratio = Dividend per share

Capital expenditure per share

TABLE:5.9

Dividend To Capital
Expenditure Ratio
Capital
Dividend expenditure per Dividend to capital
Year per share share expenditure ratio

2019-20 2.84 587 4.83

2020-21 2.92 389 7.5

2021-22 3.04 575 5.28

 CHART:5.9

DIVIDEND TO CAPITAL EXPENDITURE RATIO

2500

2019 2020 2021

Year
2000

1500 Dividend To Capital Expenditure

Ratio Dividend per share

1000
Dividend To Capital Expenditure
587 Ratio Capital expenditure per share
575
500 389
Dividend To Capital Expenditure
2.84 4.83 2.92 7.5 3.04 5.28 Ratio Ratio
0
1 2 3

INTERPRETATION:

The dividend to capital expenditure ratio is shown in the above table to be highest in
2020 ratio of 7.5 and lowest in 2019 ratio of 4.83.
5.10 DIVIDEND PER SHARE:

Ensure that the company’s dividend payout ratio (dividends per share dividend by
earnings per share) is reasonable and sustainable. A common rule of thumb is a payout ratio of
40-60% of earnings.

Dividend per share = Total dividend paid

Number of outstanding shares

TABLE:5.10

Dividend per share

Total Number of Dividend per
Year dividend paid outstanding shares share ratio

2019 1219 16451 0.07

2020 1175 14973 0.07

2021 1201 16133 0.07

 CHART:5.10

DIVIDEND PER SHARE

18000
16451 16133
16000 14973

14000

12000

10000 Dividend per share

8000

6000

4000

2000 1219 1175 1201

0 0 0.07 0.07 0.07
0
Year 2019 2020 2021

INTERPRETATION:

As per the above table the dividend per share in the year of 2019, 2020, 2021 is all the
same ratio is that 0.07.
5.11 DIVIDEND TO BOOK VALUE RATIO:

The dividend to book value ratio is not a widely used financial metric, and there isn’t a
specific rule of thumb for it. Investors and analysts typically focus on other ratios and metrics
when assessing a company’s dividend performance and financial health.

Dividend to book value ratio = Dividend per share

Book value per share

TABLE:5.11

Dividend to book value ratio

Dividend per Book value Dividend to
Year share per share book value ratio

2019 3.04 0.99 3.07

2020 2.92 0.99 2.94

2021 2.84 0.99 2.86

 CHART:5.11

DIVIDEND TO BOOK VALUE RATIO

3.5
3.04 3.07
2.92 2.94 2.86
3 2.84

2.5

2 Dividend to book value ratio

1.5
0.99 0.99 0.99
1

0.5
0 0 0
0
Year 2019 2020 2021

INTERPRETATION:

As per the above table dividend to book value ratio in the year 2019 is highest in the
ratio of 3.07 and the lowest value is 2.86 in the year 2021.
5.12 DIVIDEND MARKET CAPITALISATION RATIO:

The dividend yield (dividend per share dividend by the stock price) can give investors
an idea of the income they may receive from holding a particular stock. A higher dividend yield
relative to the market capitalization might be attractive to income focused investors, but it’s
important to assess the sustainability of the dividend payments.

Dividend market capitalization ratio = Dividend per share

Market capitalization per share

TABLE:5.12

Dividend Market Capitalisation Ratio

Market Dividend
Dividend per Capitalisation per market
Year share share capitalisation

2019 3.04 0.01 304

2020 2.92 0.01 292

2021 2.84 0.01 284

 CHART:5.12

DIVIDEND MARKRT CAPITALISATION RATIO

350

304
300 292
284

250

200

150

100

50

0 0 0 3.04 0.01 2.92 0.01 2.84 0.01

0
Year 2019 2020 2021

INTERPRETATION:

Based on the above table the dividend market capitalization ratio is high in the year
2019 is the ratio of 304 and the lowest ratio is 284 in the year of 2021.
5.13 DIVIDEND TO PRICE EARNING RATIO:

The dividend to price earning (P/E) ratio, also known as the dividend yield, is a
commonly used metric by investors. Compare the dividend yield (dividends per share dividend
by the stock price) to industry averages and the comparable companies. A higher yield can be
attractive, but it’s essential to ensure that the dividend is sustainable.

Dividend to price earnings ratio = Dividend per share

Price to earnings ratio

Dividend to price earnings ratio diluted:

TABLE:5.13

Dividend To Price Earning Ratio Diluted

Dividend to
Dividend per Price to price earning
Year share earning ratio ratio

2019 195.23 5.25 37.18

2020 195.23 3.5 55.78

2021 3.04 36.55 0.08

 CHART:5.13

DIVIDEND TO PRICE EARNING RATIO DILUTED

250

195.23 195.23
200

150

100

55.78
50 37.18 36.55

0 0 0 5.25 3.5 3.04 0.08

0
Year 2019 2020 2021

INTERPRETATION:

As shown in above table, the dividend to price earnings ratio diluted in the year 2020
is high 55.78 and the 0.08 is the lowest ratio in the above mentioned in the year 2021.
Dividend to price earnings ratio basic:

TABLE:4.13

Dividend To Price Earnings

Ratio Basic
Dividend to price
Dividend per Price to earning ratio in
Year share earnings ratio basic

2019 2.84 36.97 0.07

2020 2.92 55.62 0.05

2021 3.04 33.48 0.09

CHART:4.13

DIVIDEND TO PRICE EARNING RATIO BASIC

60 55.62

50

40 36.97
33.48

30

20

10
2.84 2.92 3.04
0 0 0 0.07 0.05 0.09
0
Year 2019 2020 2021

INTERPRETATION:

Based on the above table, the dividend to price earnings ratio basic in the year 2021 is
high in the ratio of 0.09 and the lowest ratio is 0.05 in the year 2020.
5.14 Walter model: 2021

WACC = (E\V Re) + [D\V *Rd* (1-Tc)]

= 16451 x 0.05 + 6831 x 0.20 1-0.35

23282 23282

= 0.70 x 0.05 + (0.29 x 0.2) (0.65)

= 0.035 + 0.058 (0.65)

= 0.035 + 0.0377

= 0.0727

P = D + r\k (E-D)

k
= 3.04 + 15\7 (5.34 -3.04)

0.07
= 3.04 + 0.02 (2.3)

0.07

= 3.04 + 0.046

0.07

= Rs. 44.08.
Walter model : 2020

WACC = 14973 x 0.05 + 7010 x 0.2 (1-0.23)

21983 21983

= (0.68 x 0.05) + 0.39 x 0.2 (0.77)

= (0.034) + 0.078 (0.77)

= 0.034 + 0.06

= 0.094

P = 3.04 + 15\9 (3.5 – 3.04)

= 3.04 + 0.016 (0.46)

0.09

= 3.04 + 7.36
0.09

= 10.4
0.09

= Rs. 115
Walter model : 2019

WACC = 16133 x 0.05 + 7819 x 0.2 (1 – 0.17)

23952 23952

= (0.67 x 0.05) + 0.32 x 0.2 (0.83)

= 0.03 + 0.06 (0.83)

= 0.03 + 0.04

= 0.07

P = 3.04 + 15\7 (5.25 – 0.34)

7
= 3.04 + 0.02 (4.91)
0.07

= 3.04 + 0.09
0.07

= 3.13
0.07

= Rs.45
 CHAPTER – V

FINGINDS AND SUGGESTION

 FINDINGS

• It has been found that in the dividend yield in the year 2021-22 is higher and the 2019
is lower.
• It has been found that in the dividend payout ratio diluted in the year 2020-21 is higher
and the 2019-20 is lower.
• It has been found that in the dividend payout ratio basic in the year 2020-21 is higher
and the 2021-22 is lower.
• It has been found that in the dividend growth rate in the year 2021-22 is higher and the
2020-21 is lower.
• It has been found that in the dividend to net income in the year 2020-21 is higher and
the 2019-20 is lower.
• It has been found that in the dividend to asset ratio in the year 2019-20 is higher and
the 2020-21 is lower.
• It has been found that in the dividend to equity ratio in the year 2020-21 is higher and
the 2019-20is lower.
• It has been found that in the dividend yield in the year 2020-21 is higher and the 2019-
20 is lower.
• It has been found that in the dividend to debt ratio in the year 2020-21 is higher and the
2021-22 is lower.
• It has been found that in the dividend to capital expenditure ratio in the year 2020-21 is
higher and the 2019-20 is lower.
• It has been found that in the dividend per share in the year of all three are equal.
• It has been found that in the dividend to book value ratio in the year 2019-20 is higher
and the 2021-22 is lower.
• It has been found that in the dividend market capitalization ratio in the year 2019-20 is
higher and the 2021-22 is lower.
• It has been found that in the dividend to price earnings ratio diluted in the year 2020-
21 is higher and the 2021-22 is lower.
• It has been found that in the dividend to price earnings ratio basic in the year 2021-22
is higher and the 2020-21 is lower.
 SUGGESTION

• The overall economic conditions during the respective periods. If the economy
experienced growth or recovery in 2021-22 compared to 2019, companies may have
had better financial performance, leading to higher dividend the payouts.
• The increase in the diluted dividend payout ratio in 2020-21 compared to the lower ratio
in 2019-20 suggests a potential shift in the company’s dividend distribution strategy or
improved financial performance during the later period.
• The lower ratio in 2021-22 may suggest a change in the company’s priorities, such as
a focus on retaining earnings for reinvestment in business growth, debt reduction, or
other strategic initiatives.
• The economic conditions during both periods. If 2021-22 experienced a stronger
economic recovery compared to 2020-21, companies may have been more confident in
increasing dividend payouts as business conditions improved.
• Consider the overall economic conditions during both periods. If there was economic
uncertainty or downturn in 2019-20, companies might have been more conservative in
their dividend distributions. Conversely, economic recovery or stability in 2020-21
could have prompted higher dividend payouts.
• Consider the economic conditions during both periods. If there was economic
uncertainty or a downturn in 2019-20, companies might have chosen to distribute a
higher proportion of their assets as dividends to reassure investors. Economic recovery
or stability in 2020-21 could have led to a more conservative approach.
• The profitability and performance of equity during both periods. If there was a
significant improvement in profits or equity performance in 2020-21, companies might
have chosen to distribute a higher proportion of equity as dividends.
• Consider the economic conditions during both periods. If there was economic
uncertainty or a downturn in 2019-20, companies might have been more conservative
in their dividend distributions. Economic recovery or stability in 2020-21 could have
prompted higher dividend yields.
• Consider the economic conditions during both periods. If there was economic
uncertainty or a downturn in 2021-22, companies might have been more conservatives
in their dividend distributions. Economic recovery or stability in 2020-21 could have
prompted higher dividend to debt ratios.
• Consider the economic conditions during both periods. If there was economic
uncertainty or a downturn in 2019-20, companies might have been more conservative
in their capital expenditures. Economic recovery or stability in 2020-21 could have
prompted higher dividend to capital expenditure ratios.
• The consistent dividend per share across the three years indicates that the company has
likely maintained a stable and predictable dividend policy. This stability can be
reassuring to investors who value a reliable income stream.
• Consider the economic conditions during both periods. If there was economic
uncertainty or a downturn in 2021-22, companies can have been more conservative in
their dividend distributions relative to book value. Economic recovery or stability in
2019-20 could have prompted higher dividend to book value ratios.
• Consider the economic conditions during both periods. If there was economic
uncertainty or a downturn in 2021-22, companies might have been more conservative
in their dividend distributions relative to market capitalization. Economic recovery or
stability in 2019-20 could have prompted higher dividend to market capitalization
ratios.
• The earnings performance of companies during both periods. If there was a significant
improvement in earnings in 2020-21, companies might have had more resources to
allocate towards dividends, leading to a higher dividend to price earnings ratio.
• The earnings performance of companies during both periods. If there was a significant
improvement in earnings in 2021-22, companies might have had more resources to
allocate towards dividends, leading to a higher dividend to price earnings ratio.
CONCLUSION:

The dividend paid to the company's shareholders shows whether the business is growing,
keeping the same, or declining. This study is determined by the firm’s dividend distribution.

The researcher found it useful to examine both the theoretical and practical aspects of this
project study. The analysis shows that the company is expanding and that its dividend
distribution is more than its retention dividend.

However, a company can additionally take into consideration the Walter model's retention of
dividends for shareholders. Through the utilization of shareholder retention dividends, the
company could expand. In accordance with the Walter model, the investors feel happy to invest
and have created new prospects for dividend payout.