DIVIDEND

POLICY
IS IT MUCH ADO ABOUT
NOTHING?
MASYA ZAFIRA BT SUPAAT CEA070083
MOHAMAD FADHLI IKHWAN B ROSLI
CEA070085
MUHAMMAD IZZAT B MOHD DANIAL
CEA070102
NADIRA BT ABDUL RAHIM
CEA070107
NUR ATHIRAH BT ARIFIN
CEA070131
NUR FAIZZAH BT MAHAT
CEA070132
 Shareholder
s reduce
their
purchasing
of shares
Share price
decline

Negative
signal
• A form of investment income that comes
from the sale of a portion of shares.
• S/holders create HD to get desired dividend
income.
• Disadvantage :
 dividend income is taxed at a higher
rate than capital gains.
How to create homemade
policy if company decide to
retain its earnings?
• Example :
• Current share price : $8
• Num. of shares : 1000
• Expected payments : $0.25
per share

Expected gain, 1000 x $0.25 = $ 250

Number of share to be sold = 250
8
= 32 shares.
 Wealthy
individuals
Different groups  lower
of investors payout
desire different shares
levels of Other
dividend groups
higher
payout
shares
Dividend policy
will only affect Individual’s
attraction of investor groups
particular held the highest
clientele % in total
shares

Company should
adopt low dividend
payout
 Equity Debt

Market $ 8,000,000 $ 3,350,000

Value

Calculation $8 m / $ 11.35 $ 3.35 m / $

m 11.35 m

Ratio 70.5 % 29.5 %

 Advantages Disadvantages
1. Pay dividends only if other1. paid only after there are
satisfactory opportunities. no profitable investment
2. Reduces to the issues of opportunities.
new stocks and flotation2. unstable dividend payout.
costs. 3. might pay zero dividends.
3. Minimizes the equity4. Dividend cuts - negative
signaling costs – min effects on stock prices.
WACC.
4. Set a target payout.
What do firms typically
do in practice?
Estimate the Find the
earnings and company’s
investment target long-run
opportunities payout ratio

creating two
types of
dividends

Regul
Extra
ar
 Stocks repurchase
Is when the company
buy back their own shares

Advantages Disadvantages

 Flexible  Stock repurchase

 Substantial tax plan are not

advantages complete

 Share price  Difficult accurate

maintain higher information

 EPS rises
 Compromise
dividend
policy
5 main 2 types of
goals that dividends
can be that can be
achieve created

Regula
Extra
r