2. Brief introduction about overview on dividend policy of Vietnamese listed companies.

Dividend is a sum of money paid regularly by a company to its shareholders out of its profits. A
dividend policy is the policy a company uses to structure its dividend payout to shareholders.
According to M&M theory, dividend policy does not affect to company’s value, and this is tied
to the assumptions of efficient markets and perfect. But reality in Viet Nam with the imperfect
market, dividend policy has a major impact on the company’s value.
Vietnamese listed companies usually divide dividend into two installments:
- First installment (usually in March and April): this is the end of financial year, companies have
audit results and announce the result of production and business of the last financial year and
announce the dividend policy which already accepted by the General Meeting of Shareholders.
- Second installment (usually in July and August): companies have half year result (first two
quarters) advance dividend for shareholders according to targets and results achieved in half the
year.
At the time companies announce about the dividend policy, the price share usually increases. The
increase can be caused by many reasons like: good news about Viet Nam’s macro economy,
rumors about extreme profit in buying and selling shares, information from the foreign investors,
… Companies with high payout ratio can attract more attention from investors which also lead to
the increase in share price. Dividend policy can also be seen as a tool which help show to the
public the prospect of the develop of the company. Because of the major impact of dividend
policy to the company’s value, companies have to consider carefully about using dividend policy
in different situations.
In Viet Nam, Vietnamese listed companies can use many ways to pay dividend:
Cash dividend:
This is the most common dividend we usually see in Vietnamese listed companies. Companies
often pay its dividend rate from 5% to 15%, dividend payout ratio is about 20%-60% and
dividend yield is mostly about 0%-5% differ in different field. With this rate, companies still
maintain about 40%-50% earnings to pay dividend, therefore, still maintain the rate of retain
earnings for the development of the company.
Companies usually try to maintain a stable dividend rate. They often don’t want to decrease it
but even if the earnings increase, they are still very reluctant to increase the dividend rate
because it will put the pressure on managers to have to maintain the dividend rate for the
following years. Moreover, companies with a stable dividend rate will have higher rating form
investors. So, companies often maintain its dividend rate from 5% to 15%.
An example of dividend policy from 2015 to 2020 of Kinh Do Corp:
The company only use cash dividend and maintain dividend rate from 6% to 16% in five years.
 Year Dividend rate Type of dividend
2020 6% Cash dividend
2019 16% Cash dividend
2018 10% Cash dividend
2017 16% Cash dividend
2016 16% Cash dividend
2015 14% Cash dividend

Stock dividend:
In the first few years, companies primarily choose cash dividend with payout ratio about 10%-
20%. But recently, companies now pay more attention on stock dividend, which help both
increase dividend rate and ensure there is enough capital for reinvestment. However, increasing
in share outstanding also put a great pressure on managers.
An example of dividend policy of Khang Minh Group Joint Stock Company:
The company use cash dividend in 2015 but change to stock dividend from 2018 to 2020.
Year Dividend rate Type of dividend
2020 100:10 Stock dividend
2019 20:1 Stock dividend
2018 5% Stock dividend
2015 10% Cash dividend

Combine cash dividend and stock dividend:

From 2004, companies start to focus more on paying dividend use both cash and stock. The trend
in investing stock is associated with the business growth rate, not the payout ratio by cash. The
higher the growth rate, the more stable the share price is. To accomplish that target, it requires
companies to have more investment project to expand production which will need mobilize all
the possible source including decrease cash dividend.
An example of dividend policy of TNG Investment and Trading JSC:
The company use both cash and stock to pay dividend.
2020 2019
Cash dividend 4% 8%
Stock dividend 100:8 100:8

Stock repurchase:
Even though stock repurchase is a way to pay dividend too, but Vietnamese listed companies
usually don’t use stock repurchase as a way to pay dividend. Companies can use it as a tool for
many purposes such as increase share price because when the company buys back shares, it will
reduce the outstanding shares, so at the same profit but will increase the income of each share,
which improves the EPS and other financial indicators.
An example of Viet Nam Dairy Products Joint Stock Company and Thanh Thanh Cong - Bien
Hoa Joint Stock Company:
Two companies do a lot of transactions to buy back stock from 2016 to 2020 but the transactions
are not for the purpose of paying dividend and companies use only cash and stock dividend
policy in these years.

Source: Vietstock

When managers decide a dividend policy, they will have to plan carefully because dividend
policy of companies is influenced by many factors, including:
Earnings per share and Return on assets, Return on equity of the company: The amount of cash
to pay dividend is depended on income and profitability level of the company. The higher they
are, the more opportunity the company will have in decision of dividend.
Growth opportunity: Developing companies often have high demand on capital to invest in new
investment opportunities. Therefore, companies often retain most of their profits for
reinvestment and limit dividend payments as well as avoid issuing new shares to the public
because it is both costly in terms of time and effort.
Price per earnings: A high P/E ratio can be seen as a sign of low corporate risk and a high
dividend payout ratio for that year. However, there is also a view that this high P/E ratio will
reflect the chance to develop, so businesses tend to retain profits.
Enterprise’s scale: The larger the enterprise, the higher its reputation in the financial market.
Because of that, large enterprises often more easily access to external capital. Therefore,
retaining profits to expand production and investment projects is often not the only choice for
large enterprises.
Capital structure: Enterprises with capital financed mainly by debt are those that are under
pressure to pay interest and principal payments. The high debt pressure has limited the cash flow
that can be used for profit distribution, lead to the low cash dividend ratio of these companies.
Dividend in the past: A decrease in dividend ratio compared to the previous year is considered
not a good thing in planning corporate dividend policy. Therefore, this year's dividend policy is
closely influenced by the previous year's dividend policy.
Overall, Vietnamese listed companies consider about dividend policy as a crucial factor in
development strategy. They always try to meet the need of investors, shareholders, market and
ensure the development of the company. Dividend policy increasingly determine its important
role in maintaining the company’s position in the market. Managers need to acknowledge about
pros and cons of each method of paying dividend and have to consider how dividend affect the
company and also consider what can affect dividend to choose the best dividend policy which
suitable with the different state of economy.