Beruflich Dokumente
Kultur Dokumente
Corporation
Agenda
• Introduction – Company background
• Dividend payment decisions
• Policy analysis
– Zero dividend payout – pros and cons
– 40% or $0.2 per share – pros and
cons
– Residual-dividend payout – pros and
cons
• Conclusion
Company background
• Founded in 1923
• In early days, it has designed and manufactured a number
of machinery parts, including metal presses, dies and
molds. By 1975, it has evolved as innovative producer of
industrial machinery and machine tools.
• In 1980, entered in CAD/CAM and established itself as
industry leader
• Aggressive entry of large foreign firms damped sales
• The recent restructuring has improved efficiency and
development of Artificial Workforce. System.
• The company is expected to have good growth in future
Dividend history
• For three years in a row since 2000, dividends had
exceeded earnings
• In 2003, dividends were decreased to a level below
earnings
• Despite losses in 2004, small dividend was declared
• It has not paid dividend in 2005 although it had committed
earlier to pay sometime in 2005
Dividend payment decisions
• Dividends is considered as a yardstick of a company's
prospects
• Typically, mature, profitable companies pay dividends
• If a company with a history of consistently rising dividend
payments suddenly cuts its payments, investors should
treat this as a signal that trouble is looming
• Steady or increasing dividends is certainly reassuring,
investors are wary of companies that rely on borrowings
to finance those payments
• Holding onto profits might lead to excessive executive
compensation, sloppy management, and unproductive
use of assets
Factors influencing dividend
decisions
There are three main factors that may influence a
–
Residual dividend payout
• Pro’s
– Giving back only excess retained
earnings
• Con’s
– Dividend may not be constant
• The company’s image might be
hampered
Repurchase
• Pro’s
– Will instill confidence
• In turn increase the share price
– Increase EPS
– Reduce the dilution
• Con’s
– As of now they have to take debt to
buy back shares
Corporate image advertising
• Pro’s
– Will increase the brand awareness
– Might increase share price
– Long term intangible asset
• Con’s
– Is it required now ?
– Its not proven, its speculative
– High cost
Suggestion
• Need to restore confidence and need
to be growth oriented
– They need to pay dividend or
repurchase of stock
• Paying dividend is better
– With 40% the cash flow will become
positive only in 2011
– But with 30% it will happen in 2009
itself!
• Its also safe(10% -20% growth should
accompany a dividend of 30%-50%)
• Its in sync with the industry average
• Thank You