An analysis of dividend policy of companies listed in

Sensex
Abstract
The research paper attempts to study and analysis dividend of listed companies in SENSEX
of Bombay Stock Exchange. Researcher covered all 30 companies forming part of index
SENSEX. The analysis is done on two fronts, first is all companies in single go & second is
done by group the companies sector wise. The results were eventually discussed.by the
researcher

Introduction
A dividend is payment made by a corporation to its shareholders in the form of cash or stock.
The dividend policy is a financial decision that refers to the proportion of the earnings to be
paid out to the shareholders. Here, a firm decides on the portion of revenue that is to be
distributed to the shareholders as dividends or to be ploughed back into the firm. The amount
of earnings to be retained back within the firm depends upon the availability of investment
opportunities. For a joint stock company, a dividend is allocated as a fixed amount per share.
Therefore, shareholder receives a dividend in proportion to their shareholding. For the joint
stock company, paying dividends is not an 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 it from a
regular one. Cooperative, on the other hand, allocate dividends according to members'
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 consumers' cooperatives)
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.

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Dividend Pay-out Policies –

A company that issues dividends may choose the amount to pay out using several methods.

 Stable dividend policy: Even if corporate earnings are in flux, stable dividend policy
focuses on maintaining a steady dividend pay-out.

 Target pay-out ratio: A stable dividend policy could target a long-run dividend-to-
earnings ratio. The goal is to pay a stated percentage of earnings, but the share pay-
out is given in a nominal dollar amount that adjusts to its target as the earnings
baseline changes.

 Constant pay-out ratio: A company pays out a specific percentage of its earnings
each year as dividends, and the amount of those dividends therefore vary directly with
earnings.

 Residual dividend model: Dividends are based on earnings less funds the firm
retains to finance the equity portion of its capital budget and any residual profits are
then paid out to shareholders.

2
  Need of the study: Need of the study or significance of study is to give a clear
picture of the major factors affecting the dividend policy that investors should
consider analyzing performance of different companies and their dividend policy.

 Scope of the study: To do the relative analysis between the dividend pay-out by the
Reliance Infrastructure Limited and the 30 stocks of BSE SENSEX which will lead to
know what are the trends that affect the most on dividend decision of any company. It
will also help us to analyze the growth, profit and age of the firm of reliance
industries of last 5 years which will be used for the future growth and investment
opportunity of the reliance industries limited.

Objective of the study

To analyse the trends in dividend payment of companies listed in SENSEX.
To compare and analyse the dividend payment of various companies across different
sectors.
To analyse the various factors that have an impact on dividend policy of the firm.
To study the impact of growth, profitability and age of the Reliance Infrastructure
Limited on Dividend Per Share.

3
Review of Literature: A huge volume of literature has been approved in the area of
corporate finance in relation to the dividend policy.

Modigliani and Miller

(1961) have shown, investors may be indifferent about the amount of dividend as it has no
influence on the value of a firm. Any investor can create a ‘home-made dividend’ if required,
or can invest the proceeds of a dividend payment in additional shares as and when a company
makes dividend payment. Similarly, managers may be indifferent as funds would be available
or could be raised without any floatation costs for all positive net present value projects

A brief review of these studies is highlighted in the following paragraphs in order to examine
the importance of the present study. The term dividend policy can be defined as the policy of
an organization used to declare how much it will pay to shareholders in the form of
dividends and how much has to be retain?

e dividend policy, and they

opined when the dividends could be continued in the future, then the firms would try to
increase the dividends. Ho (2003) analyzed the comparative study of Japanese and Australian
firms. In his study he found that the relation between size and dividend policy was positively
significant towards the Australian firms, as was liquidity in case of Japan.

Kumar (2003) studies the possible association between corporate governance, ownership
He observed that the association between
dividends and earnings showed a positive trend, while a negative association was found
between debt-to-equity and dividend policy.

Acharya, Biswaroy and Mahapatra (2012) found that there was a strong and significant
relation between earnings per share and dividend policy per share. Anil and Kapoor (2008)
studies the dividend payout ratio determinants in the case of Indian information technology
sector. They observed that corporate tax, cash flows, growth of sales, and the ratio of market
to book value did not influence the dividend payout pattern. However, Beta and liquidity
were found to be the determinants of dividend payout.

In the same way Abdelsalam, El-marsy and Elsegini (2008) investigated the dividend policy
of 50 listed firms in Egypt for period from 2003-2005 and found that the relation was
significant and there was a positive association between performance of firms and
institutional ownership.

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 SENSEX listed companies

Asian Paints Limited Adani Ports

Axis Bank Yes Bank Limited
Bajaj Auto Limited Wipro Limited
Bharti Airtel Limited Tata Steel Limited
Coal India Limited (CIL) Tata Motors Limited
Dr. Reddy's Lab Tata Consultancy Services Limited
HDFC Bank Limited Sun Pharmaceutical Industries Limited

Hero MotoCorp Ltd State Bank of India (SBI)

Hindustan Unilever Limited (HUL) Reliance Industries Limited
HDFC POWERGRID
ICICI Bank Limited Oil and Natural Gas Corporation
IndusInd Bank Limited NTPC Ltd.
Infosys Limited Maruti Suzuki India Limited
ITC Limited Mahindra & Mahindra Limited
Kotak Mahindra Bank Larsen & Toubro Limited

Factors affecting dividend policy

1. 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,
enterprises dealing in necessities suffer less from oscillating earnings than those dealing in
luxuries or fancy goods.

2. Age of corporation.Age
Age of the corporation counts much in deciding the dividend policy.
Anewly established company may require much of its earnings for expansion and plantimprove
ment and may adopt a rigid dividend policy while, on the other hand, an older
companycan formulate a clear cut and more consistent policy regarding dividend.

3. 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 bedistrib
uted and if cash position is good, company can distribute the cash dividend.

4. Extent of share Distribution.

Nature of ownership also affects the dividend decisions. Aclosely 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.
5. 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 nonother alternative, use their ploughed back
profits. Thus, such Companies distribute dividend at low rates and retain a big part of profits.

6. Trade Cycles.
Business cycles also exercise influence upon dividend Policy. The financial solvency can be
proved and maintained by the companies in dull years if the adequate reserves have been built
up.

7. Government Policies.
The earnings capacity of the enterprise is widely affected by
thechange in fiscal, industrial, labour, control and other government policies. Sometimesgovern
ment 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
hasto be modified or formulated accordingly in those enterprises.
8. Taxation Policy.
High taxation reduces the earnings of the companies and consequently the rate of dividend is
lowered down. Sometimes government levies dividend-tax of distribution of dividend beyond a
certain limit. It also affects the capital formation. N India, dividends beyond10 % of paid-
up capital are subject to dividend tax at 7.5 %.

9. 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 outsiders, 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 dividend on shares. It proposes that Dividend should not be distributed ou
t of capital, in any case. Likewise, contractual obligation should also be fulfilled, for example, pa
yment of dividend on preference shares in priority over ordinary dividend.

10. 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 rat. 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 organisation.

11. 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
byreducing the dividend pay out ratio for meeting any obligation requiring heavy funds.

12. 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
shareholdersthey fear dilution of control and diversion of policies and programmes of the existin
gmanagement. So they prefer to meet the needs through retained earing. If the directors do
not bother about the control of affairs they will follow
a liberal dividend policy. Thus control is aninfluencing factor in framing the dividend policy.

13. Repayments of Loan.

A company having loan indebtedness are vowed to a high rate of
retention earnings, unless one other arrangements are made for the redemption of debt onmaturit
y. 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 bound to hour such restrictions and to limit the rate of dividend pay-
out.

14. Time for Payment 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.

15. 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.

The three factors which we considered for your study that affect the dividend policy
are-

 Firm Growth Rate

 Profitability
 Age of the Company

RESEARCH METHODOLOGY
 Data collection method Data is being collected from secondary sources. DPS of 30
stocks listed in BSE SENSEX is collected from money control app which is the main
secondary source used.
 Research design This research is correlational type of research because change in
single determinant or factor of dividend policy will lead to impact on dividend policy.
Every factor is co-related to one another.
 Data analysis approach -In this research I have used multiple regression which
 shows the impact on dividend pay-out of a company due to the different factors such
as growth, profitability and age of the firm. It shows the impact of one factor on the
other and which ultimately leads to the fluctuation or the change in the dividend
policy.

Sampling Technique :
Judgmental sampling

Data Sources:

Secondary Data
 Internet Sources
 Business Journals
 Research papers

LIMITATIONS
There are basically three major limitations to my research project. They are as follows
There are many different factors that affect the dividend policy or dividend decision
of a company such as size of the company, type of industry, age of corporation, the
extend of share distribution, change in the government policy, taxation policy,
inflation, legal
 rules etc. but the study is limited to only four factors, and they are growth of the firm,
profitability, age of the firm.
The research project is limited to the BSE SENSEX listed companies only which is
another drawback of the research project. Unlike there are many more area of research
such as NSE NIFTY, NYSE, SSE etc.
Another drawback or limitation to the research project is the duration or the period.
The research is carried out on the data from the year 2014 to 2018 only. The trend of
the dividend policy changes from period to period thus this is also of the limitations to
the research project.

Data Analysis and Interpretation

Trends in dividend policy

It has been observed that factors explaining the dividend should be important because stock's
price is the present value of its future dividends. Theory also holds that dividends can signal
management's view of a firm's condition (Bhattacharya,1979; Miller and Rock, 1985). Bank
dividend policy can be explained by uses investment opportunities, capital adequacy, size,
signaling, ownership, dividend history, and risk to explain dividend payments.
Following is the table that shows the 30 listed companies on BSE SENSEX index and the
Dividend Per Share (DPS) of each company from the year 2019 to 2023.
COMPANY(SENSEX) 2019 2020 2021 2022 2023
Adani ports 1 1.1 1.1 1.3 2
Asian Paints 5.3 6.1 7.5 10.3 8.7
Axis Bank 20 4.6 5 5 0
Bajaj Auto 50 50 55 55 60
Bharti Airtel 1.8 3.85 1.36 1 5.34
Coal India 29 20.7 27.4 19.9 16.5
HDFC 14 15 17 18 20
HDFC Bank 6.85 8 9.5 11 13
Hero MotoCorp 65 60 72 85 95
HUL 13 15 16 17 20
ICICI Bank 23 5 5 2.5 1.5
IndusInd Bank 3.5 4 4.5 6 7.5
Infosys 63 59.5 24.25 25.75 43.5
ITC 6 6.25 8.5 4.75 5.15
Kotak Mahindra 0.8 0.9 0.5 0.6 0.7
Larsen 0 16.25 18.25 14 16
M&M 14 12 12 13 7.5
Maruti Suzuki 12 25 35 75 80
NTPC 5.75 2.5 3.35 4.78 5.12
ONGC 9.5 9.5 8.5 7.55 6.6
Power grid Corp 2.58 2 2.31 4.35 5.25
Reliance 9.5 10 10.5 11 6
SBI 3 3.5 2.6 2.6 0
Sun Pharma 1.5 3 1 3.5 2
Tata motors 4.1 0 0 0 0

Page 9
 Tata steel 10 8 8 10 20
TCS 32 79 43.5 47 50
Vedanta 3.25 4.1 3.5 19.45 21.2
Wipro 8 12 6 2 1
Yes Bank 8 9 10 12 2.7

From the above data we have classified the companies according to their industry or
according to their sector and the technical analysis is done by interpreting the data in the form
of graph. These graphs give the proper view of comparison between different companies
within the sector about the Dividend Per Share trend from the year 2019 to 2023. The sectors
are automotive, banking/finance, chemicals, engineering, technology, metal and mining, oil
and gas, pharmaceuticals, tobacco, telecom, utilities and Cons non-durable.

AUTOMOTIVE SECTOR
Automotive 2019 2020 2021 2022 2023
Bajaj Auto 50 50 55 55 60
Hero MotoCorp 65 60 72 85 95
Maruti Suzuki 12 25 35 75 80
M&M 14 12 12 13 7.5
Tata motors 4.1 0 0 0 0
Kotak Mahindra 0.8 0.9 0.5 0.6 0.7

AUTOMOTIVE
100

50

0
2019 2020 2021 2022 2023

Bajaj Auto Hero Motorcorp

Maruti Suzuki M&M
Tata motors Kotak Mahindra

In automotive sector there is a clear view that the DPS of Maruti Suzuki has been increased
very fast as compared to other companies. Hero MotoCorp has also shown significant growth
in their DPS after the year 2020. DPS of other companies are more likely to constant from the
year 2019 to 2023.

BANKING/FINANCE
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 Banking/Finance 2019 2020 2021 2022 2023
Axis Bank 20 4.6 5 5 0
HDFC Bank 6.85 8 9.5 11 13
ICICI Bank 23 5 5 2.5 1.5
IndusInd Bank 3.5 4 4.5 6 7.5

Page 11
 SBI 3 3.5 2.6 2.6 *
Yes Bank 8 9 10 12 2.7
HDFC 14 15 17 18 20

30 BANKING/FINANCE

20

10

0
2019 202 2021 2022 2023
Axis Bank HDFC Bank ICICI Bank

In Banking / Finance sector HDFC, and HDFC Bank has a significant growth in DPS from
2019 to 2023. IndusInd Bank has shown a slight tilt in the growth of dividend from the year
2016. There is a sudden fall of DPS in the year 2020 in case of ICICI Bank and Axis Bank
and the fall continues till the year 2023. In case of Yes Bank there is growth in DPS from the
year 2019to 20122and after that there is sudden fall in DPS (almost Rs 10) in the year 2023.

Chemicals
Chemicals 2019 2020 2021 2022 2023

Asian Paints 5.3 6.1 7.5 10.3 8.7

20
CHEMICALS

0
2019 2020 2021 2022 2023

In chemical sector the DPS of Asian Paints has significantly shown growth from the year
2019 to 2022 and after that there is gradual decrease in DPS in 2023.

ENGINEERING
Engineering 2019 2020 2021 2022 2023

Adani ports 1 1.1 1.1 1.3 2

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 Larsen 0 16.25 18.25 14 16

Engineering
20

10

0
2019 2020 2021 2022 2023

Adani ports Larsen

In Engineering sector Adani ports has been given a constant DPS to the investors and DPS
given by Larsen has suddenly increased from 2019 to 2020 and after that there is rise and fall
in DPS till the year 2023.

TECHNOLOGY
Technology 2019 2020 2021 2022 2023
Infosys 63 59.5 24.25 25.75 43.5
TCS 32 79 43.5 47 50
Wipro 8 12 6 2 1

Technology
100

50

0
2019 2020 2021 2022 2023

Infosys TCS Wipro

In technology sector Wipro initially, the Wipro has shown growth in DPS from 2019 to 2020
but later there is gradual decrease in the DPS. TCS on the other hand has increased DPS from
2019 to 2020 from 32 to 79 but after that there is decreased in DPS in 2021. Infosys has
shown decrease in DPS till 2021 and later there is gradual increase in it.

METAL AND MINING

Metal and Mining 2019 2020 2021 2022 2023
Coal India 29 20.7 27.4 19.9 16.5
Tata steel 10 8 8 10 20
Vedanta 3.25 4.1 3.5 19.45 21.2

Page 13
 Metal and Mining
40

20

0
2019 2020 2021 2021 2022

Coal India Tata steel Vedanta

Metal and Mining sector includes Coal India, Tata steel and Vedanta in BSE SENSEX 30
stocks. DPS of Coal India is decreasing and simultaneously increasing from the period 2014
to 2023. Tata steel has been nearly constant during the year 2019 to 2022 after 2022 there is
increase in DPS in 2023. Vedanta has increase DPS in 2022 and 2023.

OIL AND GAS

Oil and Gas 2019 2020 2021 2022 2023
Reliance 9.5 10 10.5 11 6
ONGC 9.5 9.5 8.5 7.55 6.6

Oil and Gas

15
10

0
2019 2020 2021 2022 2023

Reliance ONGC

In Oil and Gas sector reliance has paid less DPS in the year 2023 and ONGC has been paying
less and less DPS from the year 2020 to 2023.

PHARMACEUTICALS
Pharmaceuticals 2019 2020 2021 2022 2023

Sun Pharma 1.5 3 1 3.5 2

Page 14
 Pharmaceuticals
5
0
2019 2020 2021 2022 2023

Sun Pharma

In pharmaceuticals sector Sun Pharma has doubled their DPS from 2019 to 2020. In 2020
DPS fall to Rs 1 per share. In 2022 it has taken boost to Rs 3.5 and later it decreases to Rs 2
in 2023. It shows that there is up and downs in case of Sun Pharma from the year 2019 to
2023

TELECOM
Telecom 2019 2020 2021 2022 2023

Bharti Airtel 1.8 3.85 1.36 1 5.34

Telecom
10

0
2019 2020 2021 2022 2023

Bharti Airtel

In telecom sector Bharti Airtel is the only stock which comes under the BSE SENSEX.
Initially in 2019 the dividend payee by Bharti Airtel was Rs 1.8. after that there is increase
and simultaneously decrease in the DPS payee by them. In 2023 the Dividend Per Share
payee by the company was Rs 5.34 which is increased by four times from 2022.

TOBACCO
Tobacco 2019 2020 2021 2022 2023
ITC 6 6.25 8.5 4.75 5.15

Tobacco
10

0
2019 2020 2021 2022 2023

ITC

Page 15
ITC which comes under the tobacco sector has shown growth in DPS till 2021 after that there
is sudden fall in the DPS in the year 2022. In 2023 ITC has paid DPS of Rs 5.15 to the
investors.

Utilities 2019 2020 2021 2022 2023

NTPC 5.75 2.5 3.35 4.78 5.12
Power grid Corp 2.58 2 2.31 4.35 5.25

Utilities
10

0
2019 2020 2021 2022 2023

NTPC Power grid corp

In utility sector NTPC and Power grid Corp are the two main companies. As we can see in
the graph that NTPC initially from 2019 to 2020 has paid less DPS as compared to DPS paid
in the year 2019. After that there is increase in DPS from 2020 to 2023. In case of Power grid
corp., the DPS has being increased over the years and has paid more dividend to the investors
than the NTPC in 2023.

CONS NON-DURABLE
Cons non-durable 2019 2020 2021 2022 2023
HUL 13 15 16 17 20

cons non durable

50

0
2019 2020 2021 2022 2023

HUL

In cons non-durable we have HUL company which shows the significant growth or a constant
raise in the DPS every year.

Major factors affecting the dividend policy which we considered for the research project are
growth, profitability and the age of the firm.
 CONCLUSION

This research project tells us about the trends in dividend policy and the determinants or the
factors affecting the dividend decision or the dividend policy. We have done the technical
analysis on Dividend Per Share (DPS) pattern on the 30 listed stocks of BSE SENSEX during
the period from the year 2019 to 2023. This gives the peer comparison between the different
industries regarding their dividend pattern. There is different graph for different sector and in
each sector, there are different companies, and an attempt is done to show trends of these
companies. Further in this research project we have discuss about the different factors
affecting the dividend policy. These factors were growth of the firm, profitability and age of
the firm. This also leads to the one of the drawbacks of our research project as there are many
other factors that influence or affect the dividend decision or dividend policy.

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