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Strides Arcolab Limited's Dividend Pay-Out Decision - Final2
Strides Arcolab Limited's Dividend Pay-Out Decision - Final2
’s Dividend Pay-out De
cision
Introduction: Strides
International credit rating agencies, S&P and Fitch, downgrading India sovereign
These make company hard to raise funds, in this payout decision Strides can hold
Pros Cons
If new business will success, stock
Agency problems
price will appreciate
Payout ratio will change
More flexible to use their earnings
History of zero dividend pay-out
In the past, Strides had did three times zero dividend pay-out, we can see that Stride’s stock price change
Second option: 15-20 percent dividend p
ay-out
Conservative option: 15-20 percent dividend pay-out
Less than 22
percent over
the past decade
• The goal is to align the dividend policy with the long-term growth of the company rather than with q
uarterly earnings volatility
• The Clientele effect: investors can have a direct impact on the price of a security when a drastic chan
ge in dividend policy that affects their investment objectives
Conservative option: 15-20 percent dividend pay-out
For Strides:
It will not raise the expectation of investors for high dividend pay-out in the future
Relative to residual dividend pay-out policy, investors are less skeptical of the future growth of Strides
It makes it easier for management to decide how much of earnings should be retained
The firm can hold certain amount of capital in case of future increasing financing cost
Conservative option: 15-20 percent dividend pay-out
• Disadvantage
It cannot be changed without seriously affecting investors’ attitude toward financial sta
nding of the company
If the company pays stable dividends in spite of its incapacity, it will be suicidal in the lo
ng-run.
Third option: residual dividend pay-out
The Influence of residual dividend pay-out
Pros Cons
• Minimizes new stock issues. • Can only appeal shareholders who
• More flexible for the need of firm do not have a preference whether
10
ROA trend
6
The use of residual dividend policy: 6 4 4
3 4
2
2 0
-2
-6 -7
-10
Announcement
Dividend
Dividend
Pay-out Trend of Strides
Dividend
Effective Date (%) Remarks
Date Type
Rs.500.0000 per
10/12/2013 19/12/2013 Special 5000%
share(5000%)Special Dividend
Source:https://economictimes.indiatimes.com/strides-pharma-science-ltd/infocompanydividends/companyid-2118.cms
The use of residual dividend policy
•
The use
Employee pay-out
of residual dividend
Unit: million policy:
Amount Percentage
The market value of shares tend to be stable since the clientele effect can be avoided
Compared to residual dividend pay-out policy, Strides could invest more money in th
e new biologics market