Dividend Decision DEN eG eTySchedule Session 11: Introduction, Metrics, Activity 1, Dividend policy Session 12: Activity 2, Tax, Dividend Risk, Dividend & Value Session 13: Share repurchase, Bonus Issue Session 14: Berkshire Hathaway Case study 10‘ March 2024: Submission of ProjectSub: Financial Results for the year ended March 31, 2023 and Recommendation of a inal Dividend We enclose the audited standalone financial results of the Company and audited consolidated financial results of the Company and its subsidiaries for the year ended March 31, 2023 under Ind AS. ("the Statement"), which have been approved and taken on record at a meeting of the Board of Directors of the Company held today at 2.00 p.m. and concluded at 5.00 p.m. We would like to state that B S R & Co, LLP, statutory auditors of the Company, have issued audit reports with unmodified opinion on the Statement. Further, we would like to inform you that at the Board Meeting held today, the Directors have recommended a Final Dividend of 824 per Equity Share of 21 each of the Company which shall be paid/dispatched on the fourth day from the conclusion of the 28th Annual General Meeting, subject to approval of the shareholders of the Company. The above information is also available on the website of the Company: www. Thanking you,, Seater rssteorocccy as + Final + Interim ary + Ordinary * Special + Liquidating cin + Cash Dividend + Stock Dividend‘TATA CONSULTANCY SERVICES LIMITED TATA NOTICE DECLARATION OF THIRD INTERIM DIVIDEND, A SPECIAL DIVIDEND AND RECORD DATE Board of Directors of the Company has at its meeting held on Thursday, January 11, 2024, declared a third interim dividend of 89 and a special dividend of &18 per equity share of 1 each of the Company. The third interim dividend and special dividend will be paid on Monday, February 05, 2024, to the equity shareholders of the Company, whose names appear in the Register of Members of the Company or in the records of the Depositories as beneficial ‘owners of the shares as on Friday, January 19, 2024, which is the Record Date, fixed for the purpose. The above information is also available on the website of the Company (www.tcs.com) and on the website of the stock exchanges where the shares of the Company are listed, i.e, BSE Limited (www.bseindia.com) and National Stock Exchange of India Limited (www.nseindia.com).Metrics Dividend rate: DPS/Face value Dividend Payout: DPS/EPS Dividend Yield: DPS/MPS Dividend Growth rate Total Return = Stock Return + Dividend yieldDivi's Labs recommend 1500% dividend for FY23; how much investors will earn per share? 2min read © 20 May 2023, 04:44 PM IST Join us & Pooja Sitaram Jalswar Investing.com =- Bajaj Finance to Turn 1,500% Ex-Dividend Ahead: Eligibility & Payment Details co GED Supreme Industries dividend: Plastic company’s board to give 1,000% payoutS&P BSE SENSEX (TR) S&P BSE SENSEX 50 240292 "AeW }g1oz'9z ‘ew Sioz'g2 Aew loz'9zAeW £10292 AeW Zloz'9z AeW } boc ‘92 “AeW 010792 Aew 6000 ‘92 AeW 8007 '92 AeW 2002 ‘92 ‘AewUSD million $ Net Face TCS Dividend Income M-cap Value 2022 1754.8 5050.3 156882.2 3659.1 2023 = 5034.9 5132.3 1797286 3659.1 Calculate DP, D DR, Dividend growth rate and total return for PAO 5s)Activity 1 Go through the dividend ory of Microsoft and note your observations:Why start payment of Dividend fe ke a Agency Life cycle Shareholder theory theory pressure Fear of misuse of Mature companies -Aversion to Regret funds have high capacity to _Bivd in Hand pay dividend TheoryStop Dividend payment?? Information Signaling + Don’t pay dividend > Growing company + Start paying dividend -> Mature company + Stop Dividend > Company is in distress + Implied promise of dividend payment Clientelle theory + Dividend policy attracts share holders of similar needs Catering Theory + Dividend premiumDivi den d Policy CCyert and March provide an explanation forthe Liner findings, rounded in : vat hy cll “weeny avoidance” They aque that manages atenpt to avoid — Stable Policy antspting or forcing fone ene by wing devon ries that enphasze sh tem feta fom the scoomic cavianent. Put ant way, fis ak senders tat do not eine uceiany but ak dein wih it aoe tractable. Inthe content of vided poy, bir model predicts that manages wll Stable Reserves 4. setalevelof dividends (payout rats) by ooking at indsty norms me must be dividend sas bo. Focus on changes in dividends in response to changes in camings. maintained ™ * . Use simple ues of thumb on how to adjust dvidends, such as raising dividends only Sticky 38 Dividend essing inseae 0% rune Dividend smootheni ng theory & Ave aing die in esp 0 canges in skier ais, if es changes reviewed as shore changes These predictions are wel in ine with the finding in the Liter studyDividend Policy- Residual Policy + Dividend is paid if profit exists after future capex - Dividend = PAT after earmarking funds for Capex Song arguments ext in favor ofa restual cash dividend pocy as a means to oplmie the efciency of corporal resource use. Yet, mos fms donot follow a residual dividend poy, For various reasons, manager general flow a managed payout poy tha noes dividend smoothing. Ths managed ply also involves the retention of cash beyond investment neds in some period and shr-term borowing to meet temporary cash flow shortages duing cher peads. From a managerial perspectie, maitaning a pretcabledidend series, ith no cuts or omissions, is far more important than reuing ‘unused cash to shareholders in the short run.Last year Luna Inc. had earnings of US$2.00 a share and paid a regular dividend of US$0.40. For the current year, the company anticipates earnings of US$2.80. It has a 30% target payout ratio and uses a 4-year period to adjust the dividend. Compute the expected dividend for the current year. i ic) 3B ica} vo =) eyi ic) 3B ica} vo =) ey Luna Ltd follow residual theory of dividend. In the year just ended, they have made a net profit of Rs.6,00,000. Their debt equity ratio is 1.50 and they want to maintain it. What is the maximum amount they can invest in a project without issuing new equity shares? Suppose they have decided to invest in a project requiring an initial investment of Rs.12,00,000, can they pay dividend; if yes, amount of dividend?Is there an anamoly in the trend Identify the reason for the dip Why did the company pay such a high dividend Would you purchase the share for the dividend PXaonein a) Go throu the share price of Majesco (Aurum Proptech) for the year 2020-21Why the change in share price Impact on Share price -Announcement Date -Ex-Dividend Date *Record Date -Payment DateDividend & Taxation Tax clientele theory Tax on Dividend:- + Till March 2020:-> DDT + Post April 2020:-> Individual slab Dividend Stripping + Tax benefit from purchase of shares for dividendDividend Risk/Safety + Ability ofa company to continue to make dividend payments + Metric + Dividend Growth + Dividend Coverage: EPS/DPS - Dividend Payout: DPS/EPS. + FCFE Coverage: FCFE/(Dividend + Share repurchase) + Stable Dividend payments -> Suitable for Dividend Investing Dividend Kings Dividend Aristocrats Dividend Champions Dividend Contenders Dividend Achievers Dividend Challengers Increases Dividend payout consistently for past 50 years S&P 500 + Increases Dividend payout consistently for more than 25 years Increases Dividend payout consistently for more than 25 years Ineveases Dividend payout consistently for past 10 to 24 years Increases Dividend payout consistently for atleast past 10 years Inereases Dividend payout consistently for atleast past 5 years2012 2013 2014 2015 Calculate and Comment on Net Income 2079 1785 1536 1270 Cash Flow from operations (interest deducted) $226 3212 2614 2838 Capex 2133 1624 1138 1217 Dividend Net borrowings -462 -153 303-27 eee: Dividend paid 467 997 1141 1204 FCFE Stock Repurchases 0 411 106 «0 [OleaSolution 2012) 2013) 2014] 2015, FCFE 630 1435 17791094) DCR 4.452 1.790, 1.346 1.055 FCFE CR 1.349] 1.019 0.806 0.909,Is Dividend good or bad for value $ Gordon theory: Dividend payment has impact on value r>ke: Don't pay dividend reke: Pay dividend Assumption: 1. Alll equity financing 2. Going concern 8.r & ke will be constant = Ce] M-M theory: Dividend payment has no impact on value Assumption: Lr=ke 2. Perfect capital marketIs Dividend good or bad for company value ROC > WACC ROC < WACC Give managers the Force managers to FOFE> Dividend +Repurchase _‘lexibility to keep justify holding cash cash and set or return cash to dividends stockholders Firm should Firm should deal . cut dividends with its investment FCFE < Dividend +Repurchase een AEE nea more then cut dividendsBonus shares/Stock Dividend + BY stays same * BV per share falls * Market cap stays same + MV per share falls in proportion + FY will remain same + Active trading > Share price is refined3s 12 SHARE CAPITAL Paskale {in eye ae ch (peter Ste tatead nay dt Soe oncom feo 8 usc al uae ttn he eon tase Sar en tae ea moon ‘904010 onan) fines. i, asec Ta — eas Sine" ea aa sieht Teta rato a trae Additional information on St mae Sul ‘sree, fa Tenet Saal ino ant | ea [ti 2 | yoy tees re | tome |e cae) low lex ta | isa canna a 533213150 esau ose ne | Sarees [= ett Te) rw |) Aa. 010 ene Te 7 7 amet | Peace ‘Stock Exchange Sec TD a aaa {cum bonus date) ~ 15/03/2021 ‘After Bonus sue [exe” bonus date) — 16/03/2021 Dadestinge rr [ I edt Pu ‘wea auras oc eve 4 ‘ie TTT) =Question A company has 10,000 shares with market price of Rs. 66 per share. The company is planning to issue bonus shares at a rate of 1 share for every 1 share held. Below is the balance sheet of the company before bonus. Equity Share Capital (Rs. 100 each) —10,00,000 Reserves & Surplus 20,00,000 Total Equity 30,00,000 Alternatively, the company may opt for a stock split of 1:1. Calculate BV, BVPS, MV, MVPS after buyback or stock split.Solution [BONUS SspLit Particulars \Amt Particulars Amt [Equity Share Capital (Rs. 100) [Equity Share Capital (Rs. 50 leach) [20,00,000 each) /10,00,000 Reserves & Surplus 110,00,000 | [Reserves & Surplus 20,00,000 (Total Equity '30,00,000 | [fotal Equity 00,000 [Before [Bonus [Split FV 10 10 5 Total shares 1000 2000 20000 BV, 30,00,000 30,00,000) 30,00,000 BVPS 300, 150, 150 (V 660000, 66000( 660000, [VPS 66, 3i 33Share repurchase g Meaning $ Reasons: Methods Delisting Home-made dividend Idle cash Tender Offer Open Market Purchasesg ° oI de Loa) S =) eg Takemiya Industries, a Japanese company, has been accumulating cash in recent years with a plan of expanding im emerging Asian markets. Takemiya’s management and directors believe that such expansion is no longer practical, and they are considering a share repurchase using surplus cash: Takemiya has 10 million shares outstanding, and its net income is ¥100 million. Takemiya’s share price is ¥120. Cash not needed for operations totals ¥240 million and is invested in Japanese government short-term securities that earn virtually zero interest. For a share repurchase program of the contemplated size, Takemiya’s investment bankers think the stock could be bought in the open market at a ¥20 premium to the current market price, or ¥140 a share. Calculate the impact on EPS if Takemiya uses the surplus cash to repurchase shares at ¥140 per shareSolution Ame 240inil fer price 140/- sh Buyback shares 7 jo. of shares _|net Income _|EPS Existing - EPS before hares u 104 1dbuyback Sh after -- EPS after yuyback 828571428 10 12.06896552buybackg ° oI de Loa) S =) eg The market price of both Company A’s and Company B's common stock is US$20 a share, and each company has 10 million shares outstanding. Both companies have announced a US$5 million buyback. The only difference is that Company A has a market price per share greater than its book value per share, whereas Company B has a market price per share less than its book value per share: + Company A has a book value of equity of US$100 million and BVPS of US$100 million/10 million shares = US$10. The market price per share of US$20 is greater than BVPS of US$10. + Company B has a book value of equity of US$300 million and BVPS of US$300 million/10 million shares = US$30. The market price per share of US$20 is less than BVPS of US$30. Calculate the impact of the buy back on the book value pe share of both the companiesA. B IBV. 100 300mil i INo. of sh 1 10\mil Solution IBVPS, 1 30/- share IMPS 2 20/- share MIPS> BVPS MIPS < BVPS. {Buyback Amt 5mil ino. of sh - buyback 0.25) 0.25mil IBV (after buyback) 95 295) ino. of sh (after buybacK) 9.7: 9.75) IBVPS (after buyback) 9.743589744) 30.25641026| Current BVPS- Current BVPS ‘alue decreased ralue increasedQuestion A company is evaluating payment of special dividend versus share repurchase. In either case $6,300 would be spent. Earnings are $2.6 per share and market price is $51 per share. There are 1500 shares outstanding. Ignore taxation and _ other imperfections. + Identify which alternative would be better for a shareholder - What will be effect of both the alternatives on the company EPS and P/E + In the real world, which alternative would you recommendSolution 1 Sh holder wealth:- Current Divid Buyback Icash 0 4.2 51 Mv 51) 46.8, 0) TOTAL 51 51 51 Current Divid Buyback EPs 26, 2.6 2.833333333| Imes 51 46.8, 51 P/E 19.61538462 18 18Berkshire Hathaway Case