Impact of Dividend On Share Price: Assistant Professor Head of The Department

IMPACT OF DIVIDEND ON SHARE PRICE
A PROJECT REPORT SUBMITTED IN PARTIAL FULFILMENT OF

AWARD OF MASTER IN BUSINESS ADMINISTRATION
SUBMITTED BY
MITHUN T S
REG. NO. YMN17126
2nd YEAR MBA
Under the guidance of

Dr. ABDUL HALEEM QURAISHI, M.B.A, M.com, Ph.D.
Assistant Professor
Head of the Department
Department of Management science
Department of management science, Yuvaraja’s college (autonomous)

university of mysore-2019
APRIL- 2018
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CERTIFICATE
This is to certify that MITHUN T S studying in IV semester MBA at

Yuvaraja’s College (Autonomous) has successfully completed this project
entitled “IMPACT OF DIVIDEND POLCIY ON SHARTE PRICE”. He
has worked under the guidance of Dr.Abdul Haleem Quirashi, Assistant
professor, Department of Management Science, Yuvaraja’s College
(Autonomous) Mysore, in partial fulfilment of the requirement of IV
semester, MBA examination.
GUIDE HOD PRINCIPAL
Dr. ABDUL HALEEM QURAISHI DR.C.SUMUNGALA Dr.M.RUDRAIAH
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GUIDE’S CERTIFICATE
This is to certify that Mr.MITHUN T S studying IV semester MBA at

Yuvaraja’s college (Autonomous) has successfully completed this project
entitled “IMPACT OF DIVIDEND POLCIY ON SHARTE
PRICE” in partial fulfilment of the requirement of the award of Master
of Business Administration 2018-19, under my supervision and guidance.
Place: MITHUN T S
Date: Reg No: YMN17126
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DECLARATION
I MITHUN T S, Hereby declare that this project work entitled “IMPACT

OF DIVIDEND POLICY ON SHARE PRICE” is an outcome of my
study and is submitted in partial fulfilment of the requirement for the award
of the degree of Master of Business Administration at Yuvaraja’s College
(Autonomous) Mysore. I also declare that this project has not been
submitted earlier to any other University or Institutes for award of any
diploma or degree.
Place: MITHUN T S
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ACKNOWLEDGEMENT
I would like to take opportunity to express my deep sense of gratitude to Dr.M.RUDRAIAH principal
of Yuvaraja’s College (Autonomous), Mysore for granting me the permission to pursue this project
work.
My deepest gratitude to Dr.C.Sumangala Head of the Department and my project guide Dr.Abdul
Haleem Quraishi, Department of Management Science, Yuvaraja’s college (Autonomous), for her
enduring inspiration, guidance, throughout provoking suggestion, whole hearted support and all her
patience throughout the period of project work.
I would like to offer my deep sense of gratitude to my parents and my friends for the remarkable
understand and cooperation during the course of my study.
It gives me immense pleasure to thank all those who have helped me during the course of project
work.
Place: MITHUN T S
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TABLE OF CONTENT
SL. NO. CONTENTS PAGE NO.
1 INTRODUCTION 7-9
• Introduction
• Significance
• Need for study
• Objectives
• Research methodology
2 REVIEW OF LITRATURE 10-17
3 CONCEPTUAL FRAMEWORK 18-44
4 COMPANY PROFILE 45-55
5 DATA ANALYSIS AND INTERPRETATIONS 56-72
6 FINDINGS, SUGGESTIONS AND CONCLUSION 73-93
BIBLIOGRAPHY
APPENDIX
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CHAPTER -1
INTRODUCTION
INTRODUCTION
Several studies have showed, theories relating to dividend policy. And many studies point out the
tax preference theory. Dividend policy of a firm has implications for investors, managers and
lenders and other stake holders. Dividend policy is the set of guidelines a company uses to decide
how much of its earnings it will pay out to shareholders. When a company earns profits from
operations, management can do one of two things with those profits. It can choose to retain them
- essentially reinvesting them into the company with the hope of creating more profits and thus
further stock appreciation. The alternative is to distribute a portion of the profits to shareholders
in the form of dividends.
Investors wait for, whether dividends are declared today or accumulated and provided at a later
date. Managers’ view of flexibility to invest in projects is also dependent on the amount of
dividend that they can offers to shareholders as more dividends may mean fewer funds available
for investment. Lenders, have interest in the amount of dividend a firm declares, as more the
dividend paid less would be the amount available for servicing and redemption of their claims.
Dividend policy has a direct influence on shareholders return’s components and this dividend
policy is affected by various factors. Factors include: shareholders expectations, financial needs
of the company, legal restrictions, liquidity, access to capital market, restrictions in loan
agreement, control, investment opportunity, inflation, financial conditions and borrowing capacity
depends upon the profitability of the company. The Dividend Decision in corporate finance is a
decision made by the directors of a company. It relates to the amount and timing of any cash
payments made to the company's stockholders. The decision is an important one for the firm as it
may influence its capital structure and stock price. In addition, the decision may determine the
amount of taxation that stockholders pay.
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SIGNIFICANCE OF STUDY
Stockholders and investors:
Information plays a great role in stockholders and investors investment decision-making. These
research finding could provide the basis for a deeper and more accurate and understand of the
dividend policy. It also will lead to a better and more accurate decision-making for the
stockholders. For the stockholder, they will understand the impact of the dividend policy on share
price and will lead more accurate in decision making in investment field.
Managers:
The managers can use the research results in order to make the right decision about the
improvement in the firm’s performance.
NEED FOR STUDY:

The need of these dividend-paying firms listed on the Bombay Stock Exchange (BSE) in India to
learn their views about the factors influencing dividend policy, dividend issues, and explanations
for paying cash dividends and repurchasing shares.
SCOPE OF STUDY:
The purpose of this study to examine the impact of dividend policy on stock price of selected
company. It will focus on Bharat Petroleum Corporation Ltd., (BPCL), and Fairdeal Filaments
Ltd.., Larson & Tourbro (L&T), Creative casting limited, NG industries, Sonata Software
limited, HPCL, is listed in BSE and will be examined by applying multiple regression model for
a period 2013 to 2018.
OBJECTIVES
i) To analyze the dividend payment trend of BSE firms.
ii) To determine the target payout ratio of each firm on BSE for the year 2013 – 2018
iii) To analyze the impact of profitability, growth and size on dividend payment.
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iv) To analyze the impact of models on firms dividend policy.
RESEARCH METHODOLOGY:
Sample Size: The study consists of a sample size of 5 common companies (BSE).
Sample Composition: The sample comprises of companies, which are listed on BSE and whose
data for the last five years were available. The companies listed for less than five years have been
excluded for the purpose of study.
Sampling method: Stratified random sampling has been done for the present today.
Data: The present treatise is based on primary and Secondary Data.
Time period: Data for the period of five years i.e., from 1st April 2013 to 31st March 2018 has
been analyzed.
Hypothesis: It has been theoretically established that dividend payment is directly proportional to
profits while inversely related to growth and size. So, to test the established theorems and analyze
the impact of profitability, growth and size on dividend payment for the BSE listed companies
(out of which a list of 5 companies taken for study).
Statistical Test Used: The study used Regression Analysis to achieve the objectives set. Factor
analysis is not used, as the factor analysis reduces a large number of variables into few by grouping
them. It also does not establish the relationship between the dependent variable and independent
ones. The study however focuses on only three groups of variables and establishes the relationship
of these with dividend (dependent variable). Here, regression analysis used as one of the statistical
technique to study the relationship between dependent variable i.e., dividend with three
independent variable i.e., profitability, growth and size.
For the purpose of the study Walters’s model, Gordon Growth model and Modigliani and Miller
are followed.
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CHAPTER -2
REVIEWS OF LITRATURE
REVIEWS OF LITRATURE
Nishat and Irfan, (2003) The studied the role of dividend policy measures i.e. dividend yield and
payout ratio on share price changes in the long run during the period 1981 to 2000. The annual
data of 160 firms was taken from the various issues of “Balance Sheet Analysis” published by
State Bank of Pakistan. Price data has been taken from the annual reports and other annual
publications of Karachi Stock Exchange. Also, the methodology used a cross-sectional regression
analysis to investigate the relationship among variables. The results indicated that both the
dividend policy measures (dividend yield and payout ratio) have significant impact on the share
price volatility. The relationship is not reduced much even after controlling for the above
mentioned factors. This suggests that dividend policy affects stock price volatility and it provides
evidence supporting the arbitrage realization effect, duration effect and information effect in
Pakistan. The responsiveness of the dividend yield to stock price volatility increased during reform
period (1991-2000). Whereas payout ratio measure is having significant impact only at lower level
of significance.
Omet, (2004) Examines the dividend policy behaviour of companies listed on ASE during the
period 1985-1999. It’s concluded that the Jordanian companies follow stable cash dividend policy.
He used Linter's model to test stability in the dividend policy of listed Jordanian Companies.
Moreover, the results indicated that the 1996 imposition of a 10 percent tax rate on dividends did
not lead to any significant changes in their dividend policies and lagged dividend per share is more
important than current earnings per share in determining current dividend per share.
John Goddard, (2006) The purpose of this paper was to test the validity of the smoothing and
signaling hypothesis of dividend determination. Author used VAR framework for examination of
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the dynamic behaviour of share prices, dividends and 21 earnings. Causality test is used for
obtaining signalling hypothesis. For study purpose, 137 UK manufacturing and service companies
are observed during the period 1970- 2003. Author observed a strong relationship between prices,
dividends, and earnings. Author also observed a little bit diversity in the casual relationship
between prices, dividends and earnings.
Dr.JasvirS.Sura, (2006) The object of this paper was to evaluate the factors influencing dividend
policy decisions in banking sector. This study examined the re-applicability of Linter’s (1956) and
Britain (1966) path breaking analyses of dividend policy. For, study purpose banks listed on
National stock exchange have been taken. Survey has been made by using cross sectional analysis
during the period 1996- 2006.The study found that commercial banks in India generally followed
stable dividend policy. The study also found that lagged dividends and current earnings are major
determinants of dividends. The study also supported the argument of ‘information content of
dividends’ with reference to dividend proceeds. Hence, author suggested that the management of
the bank can use dividend policy as signalling device.
Mohammed Amidu, (2006) This paper studied the determinants of dividend payout ratios. For
analysis purpose, firms listed on Ghana stock Exchange have been taken for six years period.
Ordinary Least square model is used to estimate the regression equation. Author used institutional
holding as s proxy for agency cost. Growth in sales and market to book value were also used as
proxies for investment opportunities. Study observed positive relationship between dividend pay-
out ratios and profitability, cash flow and tax and negative association between dividend payout
and risk institutional holding, growth and market to book value. Study also showed that
profitability, cash flow, sales growth and market to book value are significant variables.
AL-Malkawi, (2007) The examined determinants of corporate dividend policy in Jordanian

Companies 135 during the period 1989-2000 by using Tobit Model of Regression Analysis. His
study indicated that there is a positive relationship between profitability, firm’s age, firm’s size
and dividend policy. The leverage, risk, institution ownership have negative effect on dividend
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policy. Also, he shows that many factors that are found to be significant in the determination of
dividend policy are the same as those found in developed markets.
Bhattacharyya, (2007) The Study aimed here to review in brief the principle theories of dividend
policy and to summarize empirical evidence on these theories. For study purpose author has
reviewed and identified major theoretical and empirical papers on dividend policy. It is found that
still some dividend puzzles are not solved. Some empirical evidences are of ambiguous and the
search for new explanation for dividends continues.
Pani, (2008) the object of this paper was to analyse the possible links between dividend policy
and stock-price behaviour in Indian corporate sector. For study purpose 500 listed companies on
BSC had been taken during the period 1996- 2006.The survey made on six different industries
namely electricity, food and beverage, mining, Non-metallic, Textile and service-sector. Fixed
effect model had been used for study purpose. The variables like size and long term debt-equity
ratio has been taken for analysing the relationship between dividend retention ratio and stock-price
behaviour of the firm by using panel data approach. The study result based on fixed effect model.
The result of this model indicated that there is possible links between dividend policy and stock
price behaviour. The author said that in some industries it shows the possibility of “clientele effect.
Nalinaksha Bhattacharyya, (2008) this paper analyzed the present and tests a model of the
association between dividend payout and executive compensation. Study has been made on
Canadian firms during the period 1993-95. The author used Bhattacharya model which is based
on two best fit world, where managerial quality is not observed by shareholders and because of
that first-best contracts are not possible and as per the second best world compensation contracts
motivate high quality managers for retaining and investing in firms’ earnings Whereas low quality
managers are motivated to distribute the income among the shareholders. Survey found that with
the prediction of Bhattacharya model, dividend payout is positively associated with executive
compensation.
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Al‐Najjar, (2009) The purpose of this paper was to investigate the dividend policy situation,
dividends behaviour and dividend policy decision in Jordan emerging markets, by comparing the
differences between developed markets and emerging markets in the dividend policy context. It
also covers determinants of dividend policy. For study purpose, Jordanian non-financial firms
were considered. The paper found that the dividend policy in Jordan, as a developing country is
influenced by number of factors like leverage ratio, institutional ownership, profitability, business
risk, asset 17 structure, growth rate and firm size. The study also revealed that Linter model is
valid for Jordanian data and that Jordanian firm have target payout ratios and that they adjust to
their target relatively faster than firms in more developed countries.
KhaledHussainey, (2009) Examined the value relevance of voluntary disclosure and dividends
signal future earnings for decline earnings growth firms. For study purpose, the behaviour of 33
non-financial UK firms after a decline of their sustained growth has been taken. Corporatized
content used to analysis number of forward looking sentences in the annual report narratives. For
examining the association with the abnormal future earnings, it shows changes in disclosures and
dividends in the year of earning growth declines. The result showed that value relevant information
about future earnings for declining earnings growth firms does not depend on increase in
dividends.. But it is generally based on signalling theory and mentioned that 18 forward looking
information in annual report is an important tool for signalling future earnings for these firms.
Parua A.A, (2009) The main aim of this study was to find out the trends in dividend payment and
determinants of dividend decision.607 listed Indian companies have been considered for the study
purpose during the period from 1993-94 to 2004-05.The study found that while setting dividend
policy current-profit, past-profit and expected future profit have play significant positive role and
cash position and cash flow has significant negative relationship with only dividend rate. Whereas
interest expenses, capital expenditure, tax ratio and share price behaviors were not related to matter
of dividend payment. The author also said that for any managers stability of dividends is the
primary concern.
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Neil L. Fargher, (2009) The study investigated the cross-sectional differences in the profits,
returns, and risk of high and low market to book ratio stocks before and after the initiation of
regular cash dividend payments. Study has been conducted for the period of 1965-2000. For study
purpose some parametric and non-parametric statistics was used. To test for differences in profits,
returns and risk of high and low- market to book ratios stocks before and after dividend initiation
ordinary regression was used. The study found that the low –market-to-book stocks positively
connected with dividend initiation announcements. The study also showed that in comparison with
low market to book stocks high market-to-book stock firms have large profits, cash levels and
capital expenditure before and at the time of dividend initiation. The study also found that decrease
in systematic risk is associated with excess returns earned by low market-to-book stock firms
whereas high profitability is associated with high market-to-book stock firms.
Pourheydari, (2009) The aim of this paper was to evaluate the CFOS (Chief Financial Officers)
views on dividend policy of Iranian firms. Survey has been made Iranian firms listed on the Tehran
stock exchange regarding the factors influencing dividend policy for the year 2006. Based on
theoretical and empirical works on dividend policy author identified the factors that are most
important for study purpose. The finding showed that stability of cash flow, the available
profitable investment opportunities and stability of profitability are important factors that
influenced the dividend policy.
Temurshoey, (2009) The aim of this paper was to find out the problems related to over estimation
of profits because of presence of cross-shareholding (CS) links among firms. Author used matrix
Algebra to identify both direct and indirect financial interests. By comparing the industry, finding
showed that retained earnings increases, while aggregate external shareholder’s returns decreases
unless dividend ratios are all unity. The study also revealed that for all profits specifications,
qualitatively there is no difference but quantitatively there is a difference. The author also said that
if there 19 are extensive CS links present in industry dividend payment have to be taken in to
account by analysing market performance.
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Amitabh Gupta, (2010) Re-examined the various factors that influenced the dividend decision of
firms. The study has been conducted on BSE listed Indian companies for the period 2001-
2007.Depending on the literature review author has found fifteen variables for framing dividend
policy. Author used factor analysis for extracting prominent factors from various variables. And
then multiple regression analysis has been conducted. The result of the factor analysis showed that
leverage, liquidity, ownership structure and growth are major factors. The study revealed that after
applying regression leverage and liquidity are the major determinants of dividend policy for Indian
companies. The study also found that non-financial factors such as foreign collaborators’
shareholding, attitude and behaviour of management, company policy etc. may also influence the
dividend decision of firm.
Setia‐Atmaja, (2010) Investigated the broad influence of debt and dividend policies of family
controlled firms. Panel data of Australian publically listed firms were considered for survey
purpose during the 17 structures, growth rate and firm size. The study also revealed that Linter
model is valid for Jordanian data and that Jordanian firm have target payout ratios and that they
adjust to their target relatively faster than firms in more developed countries.
Yahyaee, (2010) Investigated the stability of dividend policy by using a unique data set. Omani
firms were used for study purpose. Author used Linter model to test the dividend smoothing
behaviour. The specific econometric TOBIT regression was used for panel data. Author observed
that Oman firms adopted a smoothing dividend policy. Author also observed that the prediction
suggested by the high bank leverage, absence of taxes and variability of dividend payments in
Oman does not suggested by stability of dividends. Author also observed the differences between
dividend policies of Omani companies and developed markets companies. Author also said that
while making their investment decisions potential investors are aware about these differences.
John Consler, (2011) The object of this paper was to make the comparison of relative power of
operating cash flow and earnings in the prediction of dividends. 1902 dividends paying firms were
analysed for study purpose. Quarterly CRSP and comp stat data has been taken for the year 2002
to 2006. Cash flow per share is shown to produce a better fit than earning per share based on
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selected model fit criteria. Author also suggested that investors and analysts predict dividends as
a part of their stock valuation work.
John consler, (2011) The object of this paper was to make the comparison of relative power of
operating cash flow and earnings in the prediction of dividends. 1902 dividends paying firms were
analysed for study purpose. Quarterly CRSP and comp stat data has been taken for the year 2002
to 2006. Cash flow per share is shown to produce a better fit than earning per share based on
selected model fit criteria. Author also suggested that investors and analysts predict dividends as
a part of their stock valuation work.
Pasricha D.A, (2011) The objective of this study was to test the applicability of dividend models
in Indian context with special reference to engineering Industry. Regression model was used to
test the study. It is found that the Linter model provided a good fit and other four models developed
by Dostoevsky, Britain do not offer appropriate explanation of dividend behaviour in majority
companies.
N. R. Parasuraman, (2012) The aim of this research paper was to study the effectiveness of
Linter's model for dividend payout. Analysis made on BSE Sensex firms during the period 2002-
2011.For study purpose Linter model and another three basic models were used. Multiple
regression were used to test the variables namely, cash earnings, basic earnings, lagged dividends
and capital expenditure .By using Linter model as a base, it is found that the payout decision of
Sensex firms depends on the factors like earnings, cash earnings, lagged dividends and capital
expenditure. It can also be found that Linter Model holds good to a large extended in case of
Sensex firms. In short the study support prevalence and relevance of Linter model of dividend
policy. This simply suggested that managers can’t ignore the variables like earnings capacity and
lagged dividends while designing dividend policy.
Pasricha, (2012) Investigated links between the dividend policy and value of firms. For survey
purpose 20 sample companies of information technology and pharmaceuticals industries of India
have been taken during the period 2001 to 2010.The sample has been chosen from S& P CNX
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Index on the basis of their Net- 23 Worth. The data mainly used for study purpose has been
obtained from prowess database of the Centre for monitoring Indian Economy (CMIE) India.
Multiple Regression model used for study purpose and graphical pictorial previews were used for
presenting data. The study concluded that the dividend pay-outs having considerable bearing and
positive and significant relationship with the value of firms.
Dr.T.Sobha Rani, (2013) The purpose of this research paper was to evaluate the profitability and
its growth rate in selected pharmaceuticals companies in India. secondary data used for study
purpose during the period 2002-2011.For an analysis purpose annual compound rate, Profit before
interest and tax, profit after tax, earnings 22 per share, dividend per share variables were used. The
study found that the profitability of pharmaceutical companies are affected by determinants of
dividend and it also revealed that annual compound growth rates of dividends determination give
the profitability and growth rate. Author also suggested that decisions regarding companies’
performance depend not only on highest dividend per share but more on broad decision, dividend
payout ratio and several other factors.
Prof. RanpreetKaur, (2014) Investigated the concept and scope of dividend policy and to study
the irrelevance theory (Modigliani-Miller Model) dividend theory and to know the relationship
between dividend policy approach and share prices (companies listed in CNX Dividend
opportunities Index was chosen as population universe) and for sample 5% companies listed in
index was considered. Analysis has been made by using secondary data and simple random
sampling is used during period 2017- 2018.The study found that there is neither positive nor
negative relationship between the market price of shares and dividend payout. Author said that
due to other factors share-prices are affected. It can be concluded that irrelevance theory shows
true picture in current scenario in comparison to relevance theory in short time period.
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CHAPTER -3
CONCEPTUAL FRAME WORK
DIVIDEND
Dividend refers to the corporate net profits distributed among shareholders. Dividend can be both
preference dividends and equity dividends. Preference dividends are fixed dividends paid as a
percentage every year to preference shareholders if net earnings are positive. After the payment
of dividends, the remaining net profits are paid or retained or both depending upon the decision
taken by the management.
DEFINITION: DIVIDEND
According to the Institute of Chartered Accountants of India, dividend is "a distribution to

shareholders out of profits or reserves available for this purpose. “Dividend may be defined as the
return that a shareholder gets from the company, out of its profits, on his shareholdings. “In other
words, dividend is that part of the net earnings of a corporation that is distributed to its
stockholders. It is a payment made to the equity shareholders for their investment in the company.
As per the section 2(22) of the Income Tax Act, 1961, dividend defined as:- "Any distribution of
accumulated profits whether capitalized or not, if such distribution entails a release of assets or
part thereof". The word dividend has not been defined in The Indian Companies Act, 1956. It may
be described as a periodical cannot be declared from capital gains under following conditions:
i) Provision in Articles of Association.
ii) Capital gain must be realized.
All assets & liabilities must be revalued before distributing this capital gain.
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DIVIDEND POLICY
Dividend decision being one of the important financial decisions of a corporate firm has been still
a most debated issue across the world. There are extensive literatures, theories, and models for
facilitating dividend decisions.
DEFINITION: DIVIDEND POLICY
"Dividend policy determines the ultimate distribution of the firm's earnings between retention (that
is reinvestment) and cash dividend payments of shareholders."
"Dividend policy means the practice that management follows in making dividend payout
decisions, or in other words, the size and pattern of cash distributions over the time to
shareholders."
In other words, dividend policy is the firm's plan of action to be followed when dividend decisions
are made. It is the decision about how much of earnings to pay out as dividends versus retaining
and reinvesting earnings in the firm.
Dividend policy means policy or guideline followed by the management in declaring of dividend.
A dividend policy decides proportion of dividend and retains earnings. Retained earnings are an
important source of internal finance for long term growth of the company while dividend reduces
the available cash funds of company.
There is a reciprocal relationship between retained earnings and dividend i.e. larger the retained
earnings, lesser the dividend and smaller the retained earnings, larger the dividend.
James E. Walter (1963) says "Choice of dividend policy almost effects the value of the enterprise”
"Dividend policy must be evaluated in light of the objective of the firm namely, to choose a policy
that will maximize the value of the firm to its shareholders"
Financial Management and Policy:

As we know in corporation, owners are shareholders but management is done through Board of
directors. It is the Board of Directors to decide whether to pay dividend or retain earnings for
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future projects. It is a matter of conflict between shareholders and directors. Shareholders expect
a quick return on their capital. On the other hand, directors have to consider a number of factors
in determining divided policy.
Investors must keep an eye on the company's dividend policy for most companies regular boosts
in the face of irregular earnings can be a warning signal. So can the refusal of Management to
lower dividends when earning fall or capital requirement rise. Companies with high dividend and
rising debt may be borrowing money to pay shareholders. For investors who are seeking stock that
will advance on their performance and earnings and earnings per share, lower dividend may mean
high returns. (Adopted from the Quality of earnings - Thornton O. Glove 1987) .
The dividend policy of a company reflects how prudent its financial management is. The future
prospects, expansion, diversification mergers are effected by dividing policies and for a healthy
and buoyant capital market, both dividends and retained earnings are important factors.
Most of the company follows some kind of dividend policy. The usual policy of a company is to
retain a position of net earnings and distribute the remaining amount to the shareholders. Many
factors have to be evaluated before forming a long term dividend policy.
Set of guidelines, a company uses to decide how much of its earnings it will pay-out to
shareholders. Some evidence suggests that investors are not concerned with a company’s dividend
policy since they can sell a portion of their portfolio of equities, if they want cash.
TYPES OF DIVIDENDS:
Classifications of dividends are based on the form in which they are paid. Following given below
are the different types of dividends:
• Cash dividend
• Bonus Shares referred to as stock dividend in USA
• Property dividend interim dividend, annual dividend.
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• Special- dividend, extra dividend etc.
• Regular Cash dividend
• Scrip dividend
• Liquidating dividend
• Property dividend
 Cash dividend:
Companies mostly pay dividends in cash. A Company should have enough cash in its bank account
when cash dividends are declared. If it does not have enough bank balance, arrangement should
be made to borrow funds. When the Company follows a stable dividend policy, it should prepare
a cash budget for the coming period to indicate the necessary funds, which would be needed to
meet the regular dividend payments of the company. It is relatively difficult to make cash planning
in anticipation of dividend needs when an unstable policy is followed.
The cash account and the reserve account of a company will be reduced when the cash dividend
is paid. Thus, both the total assets and net worth of the company are reduced when the cash
dividend is distributed. The market price of the share drops in most cases by the amount of the
cash dividend distributed.
 Bonus Shares: (OR Stock -dividend in USA)
An issue of bonus share is the distribution of shares free of cost to the existing shareholders, In
India, bonus shares are issued in addition to the cash dividend and not in lieu of cash dividend.
Hence, Companies in India may supplement cash dividend by bonus issues. Issuing bonus shares
increases the number of outstanding shares of the company. The bonus shares are distributed
proportionately to the existing shareholder. Hence there is no dilution of ownership.
The declaration of the bonus shares will increase the paid-up Share Capital and reduce the reserves
and surplus retained earnings) of the company. The total net-worth (paid up capital plus reserves
and surplus) is not affected by the bonus issue. Infect, a bonus issue represents a recapitalization
of reserves and surplus. It is merely an accounting transfer from reserves and surplus to paid up
capital.
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The following are advantages of the bonus shares to shareholders:
o Tax benefit: One of the advantages to shareholders in the receipt of bonus shares is the
beneficial treatment of such dividends with regard to income taxes.
o Indication of higher future profits: The issue of bonus shares is normally interpreted by
shareholders as an indication of higher profitability.
o Future dividends may increase: If a Company has been following a policy of paying a
fixed amount of dividend per share and continues it after the declaration of the bonus issue,
the total cash dividend of the shareholders will increase in the future.
o Psychological Value: The declaration of the bonus issue may have a favorable
psychological effect on shareholders. The receipt of bonus shares gives them a chance sell
the shares to make capital gains without impairing their principal investment. They also
associate it with the prosperity of the company.
 Property dividends:
A company may issue a non-monetary dividend to investors, rather than making a cash or stock
payment. Record this distribution at the fair market value of assets distributed. Since the fair
market value is likely to vary somewhat from the book value of the assets, the company will likely
to record the variance as a gain or loss. This accounting rule can sometimes lead a business to
deliberately issue property dividends in order to alter their taxable and reported income.
 Special dividend:
In special circumstances Company declares Special dividends. Generally company declares
special dividend in case of abnormal profits.
 Extra- dividend:
An extra dividend is an additional non-recurring dividend paid over and above the regular
dividends by the company. Companies with fluctuating earnings payout additional dividends when
their earnings warrant it, rather than fighting to keep a higher quantity of regular dividends.
 Annual dividend:
When annually company declares and pay dividend is defined as annual dividend.
 Interim dividend:
During the year any time company declares a dividend, it is defined as Interim dividend.
 Regular cash dividends:
Regular cash dividends are those the company exacts to maintain every year. They may be paid
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quarterly, monthly, semiannually or annually.

 Scrip dividends:
A company may not have sufficient funds to issue dividends in the near future, so instead it issues
a scrip dividend, which is essentially a promissory note to pay shareholders at a later date. This
dividend creates a note payable.
 Liquidating dividends:
When the board of directors wishes to return the capital originally contributed by shareholders as
a dividend, it is called a liquidating dividend, and may be a precursor to shutting down the
business. The accounting for a liquidating dividend is similar to the entries for a cash dividend,
except that the funds are considered to come from the additional paid-in capital account.
 Stock dividend: :
A stock dividend is the issuance by a company of its common stock to its common shareholders
without any consideration. If the company issues less than 25 percent of the total number of
previously outstanding shares, you treat the transaction as a stock dividend. If the transaction is
for greater proportion of the previously outstanding shares, then treat the transaction as a stock
split. To record a stock dividend, transfer from retained earnings to the capital stock and additional
paid-in capital accounts an amount equal to the fair value of the additional shares issued. The fair
value of additional shares issued is based on their fair market value when the dividend is declared.
THE DIVIDEND DECISION
The company's Board of Directors makes dividend decisions. They are faced with the decision to
pay out dividends or to reinvest the cash into new projects. The trade-off between paying dividends
and retaining profits within the company. The dividend policy decision is a trade-off between
retaining earnings v/s paying out cash dividends.
Dividend policies must always consider two basic objectives:
• Maximizing owners' wealth
• Providing sufficient financing
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While determining a firm's dividend policy, management must find a balance between current
income for stockholders (dividends) and future growth of the company (retained earnings).
In applying a rational framework for dividend policy, a firm must consider the following two
issues:
a. How much cash is available for paying dividends to equity investors, after meeting all needs-
debt payments, capital expenditures and working capital (i.e. Free Cash Flow to Equity -
FCFE)
b. To what extent are good projects available to the firm (i.e. Return on equity - ROE > Required
Return)
The potential combinations of FCFE and Project Quality and the generalizations of the dividend
policy to be adapted in each situation are presented below:
Factors FCFE> Dividends FCFE<Dividends
ROE>Cost of Equity Good Projects Good Projects
Cash flow surplus Decrease Dividends
No Change Invest in Projects
ROE< Cost of Equity Poor Projects Poor Projects
Cash flow surplus Cash flow Deficit
Increase Dividends Decrease Dividends
Reduce Investment Reduce Investment
Figure 3.1: Dividend Decision Matrix
DIVIDEND PAYMENT PROCEDURES
The firm's board of directors normally meets quarterly to evaluate financial performance and
decide whether, and in what amount, dividends should be paid. If dividend is to be paid the
declaration date, record date etc. have to be established.
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Sinicant dates
Declaration date Record date Payment Cum-dividend Ex- dividend
Declaration date: This is the day on which the board of directors declares a payment of dividend.
Date of Record: This is the day on which all persons whose names are recoded as stockholders
will receive the dividend.
Payment date: The dividend checks are mailed to shareholders of record.
Cum Dividend date: This is the last say on which the buyer who buys the stock is entitled to get
the dividend.
Ex-Dividend date: Shares become ex dividend on the date seller is entitled to keep the dividend.
This is the first date on which the buyer who buys the stock is not entitled to dividend.
DIVIDEND POLICY THEORIES
Over the time various theories of dividend policy have emerged; some of the main theories are as
follows:
1. The Residual Theory of Dividend Policy

The residual theory of dividend policy holds that the firm will only pay dividend from residual
earnings, that is dividends should be paid only if funds remain after the optimum level of capital
expenditures is incurred i.e. all suitable investment opportunities have been financed. With a
residual dividend policy, the primary focus of the firm is on investments and hence dividend policy
is a passive decision variable. The value of a firm is a direct function of its investment decisions
thus making dividend policy irrelevant.
2. Dividend Irrelevancy Theory, (Miller & Modigliani, 1961)

The dividend irrelevancy theory asserts that dividend policy has no effect on either the price of
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the firm or its cost of capital.
Dividend Irrelevance Arguments:

Dividend policy does not affect share price because the value of the firm is a function of its
earning power and the risk of its assets. If dividends do affect value, it is only due to:
a) Information effect: The informational content of dividends relative to management's earnings
expectations.
b) Clientele effect: A clientele effect exists which allows firms to attract shareholders whose
dividend preferences match the firm's historical dividend payout patterns. A study conducted
by Ashwath Damodaran found that;
(a) Older investors were more likely to hold high dividend stocks and
(b) Poorer investors tended to hold high dividend stocks
Hence, firms with older investors pay higher dividends and firms with wealthier investors pay
lower dividends.
The Clientele Effect
Firm A-No
dividends
High Net Worth
Tax Exempt
Individual and
Firm B-
Dividends
Lower Tax
Bracket
Figure 3.3: The Clientele Effect
(b) Signalling effect: Rise in dividend payment is viewed as a positive signal whereas reduction
in dividend payment is viewed as a negative signal about the future earnings prospects of the
company, thus leading to an increase or decreases in share prices of the firm. Managers use
dividends as signals to transmit information to the capital market. Theoretical models by
Bhattacharya (1979), Miller and Rock (1985)and John and Williams (1985)and Williams
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(1988)tell us that dividend increases convey good news and dividend decreases convey bad
news.
However, this theory is based on the following assumptions:
1. There is an existence of perfect capital markets i.e. No personal or corporate taxes and no
transaction costs.
2. The firm's investment policy is independent of its dividend policy.
3. Investors behave rationally and information is freely available to them
4. Risk or uncertainty does not exist.
The above-mentioned assumptions exclude personal and corporate taxes as well as any linkage
to capital investment policy as well as other factors that limit its application to real world
situations.
3. The Bird in the Hand Theory, (John Lintner 1962 and Myron Gordon, 1963)
The essence of this theory is not stockholders are risk averse and prefer current dividends due
to their lower level of risk as compared to future dividends. Dividend payments reduce investor
uncertainty and thereby increase stock value. This theory is based on the logic that ' what is
available at present is preferable to what may be available in the future'. Investors would prefer
to have a sure dividend now rather than a promised dividend in the future (even if the promised
dividend is larger). Hence dividend policy is relevant and does affect the share price of a firm.
4. The Tax Differential Theory, (B. Graham and D.L. Dodd)

This theory simply concludes that since dividends are taxed at higher rates than capital gains,
investors require higher rates of return as dividend yields increase. This theory suggests that a
low dividend payout ratio will maximize firm value.
5. Percent Pay-out Theory (Rubner 1966)

Rubner (1966) argued that shareholders prefer dividends and directors and managers requiring
additional finance would have to convince the investors that proposed new investments would
increase their wealth. However to increase their job security and status in the eyes of the
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shareholders companies can adopt 100 per cent pay-out. However this policy is not followed
in practice.
6. Per Cent Retention Theory (Clarkson and Eliot 1969)

Clarkson and Eliot (1969) argued that given taxation and transaction costs dividends are a
luxury that is not afforded by shareholders as well as by companies and hence a firm can follow
a policy of 100 per cent retention.
Firms can thus avail of new investment opportunities that would be beneficial to shareholders
too.
7. Agency Cost Theory (Jenson)

Since Jenson and Mackling (1976), many studies have provided arguments that link agency
costs with the other financial activities of a firm. It has been argued that firms pay-out dividends
in order to reduce agency costs.
Dividend pay-out keeps firms in the capital market, where monitoring of managers is available
at lower cost. If a firm has free cash flows (Jensen (1986), it is better off sharing them with
stockholders as dividend pay-out in order to reduce the possibility of these funds being wasted
on unprofitable (negative net present value) projects. This modern view of dividend policy
emphasizes the valuable role of dividend policy in helping to resolve agency problem and thus
in enhancing shareholder value.
8. A Summary View of Dividend Policy Theories

The dividend policy theories focus on the issue of the relevancy of dividend policy to the value
of a firm.
Dividend Irrelevance
• Dividends do not make any difference (M & M theory)
• If there are no taxes disadvantages associated with dividends.
Dividend Relevance
• Dividends are relevant and have positive impact on firm value
• If stockholders like dividends, or dividends operate as a signal of future prospects. (Lintner&
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Gordon)
• Dividends help to resolve agency problem and thus enhancing shareholder value. (Jenson)
• Dividends are not good (Graham and Dodd)
• If dividends have a tax disadvantage and increasing dividends reduce value.
There are therefore, conflicting viewpoints regarding the impact of dividend decision on value
of a firm.
DIVIDEND MODELS
The various models that support the above-mentioned theories of dividend relevance and
irrelevance are as follows:
1. Modigliani Miller approach

According to them the price of a share of a firm is determined by its earning potentiality and
investment policy and not by the pattern of income distribution. The model given by them is as
follows:
Po = D1 + P1/ (1/Ke)
Where, Po = Prevailing market price of a share
Ke = Cost of equity capital
D1 = Dividend to be received at the end of period one
P1 = Market price of a share at the end of period one
According to the MM hypothesis, market value of a share before dividend is declared is equal to
the present value of dividends paid plus the market value of the share after dividend is declared.
Assumptions:
• There is a rational behavior by the investors and there exists perfect capital markets.
• Investors have free information available for them.
• No time lag and transaction costs exist.
• Securities can be split into any parts i.e. they are divisible.
• No taxes and floatation costs.
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• The investment decisions are taken firmly and the profits are therefore known with
certainty.
• The dividend policy does not affect these decisions.
• The rate of return (r) will be equal to the discount rate (k).
Model description:
The dividend irrelevancy in this model exists because shareholders are indifferent between paying
out dividends and investing retained earnings in new opportunities. The firm finances
opportunities either through retained earnings or by issuing new shares to raise capital. The amount
used up in paying out dividends is replaced by the new capital raised through issuing shares. This
will affect the value of the firm in an opposite way. The increase in the value because of the
dividends will be offset by the decrease in the value for new capital rising.
Criticism:
• R should be equal for K; otherwise the lower yielding securities will be traded for the
higher yielding securities.
• Switching continues, until the differentials in rates of return are eliminated.
2. Walter's approach
According to Prof. James E. Walter, in the long run, share prices reflect the present value of
future+ dividends. According to him investment policy and dividend policy are inter related and
the choice of an appropriate dividend policy affects the value of an enterprise. His formula for
determination of expected market price of a share is as follows:
P = D + r/K (E-D) K
Where, P = Market price of equity share
D = Dividend per share
E = Earnings per share
(E-D) = Retained earnings per share
r = Internal rate of return on investment
k = cost of capital
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Model description:
Walter's model says that if r<ke then the firm should distribute the profits in the form of dividends
to give the shareholders higher returns. However, if r>ke then investment opportunities reap better
returns for the firm and thus, the firm should invest the retained earnings. The relationship between
r and k are extremely important to determine the dividend policy. It decides whether the firm
should have zero payout or 100% payout.
• If r>ke, the firm should have zero payout and make investments.
• If r<ke, the firm should have 100% payouts and no investment of retained earnings.
• If r=ke, the firm is indifferent between dividends and investments.
Case If dividend payout ratio If dividend payout ratio

increase decrease
Growing firm(r>ke) Market value of share decreases Market value of firm increases
Declining Market value of firm increases Market value of share decreases

firm(r<ke)
Normal firm(r=ke) No change in value of share No change in value of share
Assumptions:
• Retained earnings are the only source of financing investments in the firm, there is no
external finance involved.
• The cost of capital, k e and the rate of return on investment, rare constant i.e. even if new
investments decisions are taken, the risks of the business remain same.
• The firm's life is endless i.e. there is no closing down.
Basically, the firm's decision to give or not give out dividends depends on whether it has enough
opportunities to invest the retained earnings i.e. a strong relationship between investment and
dividend decisions is considered.
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Criticism:
Although the model provides a simple framework to explain the relationship between the market
value of the share and the dividend policy, it has some unrealistic assumptions.
• The assumption of no external financing apart from retained earnings, for the firm make
further investments is not really followed in the real world.
• The constant r and ke are seldom found in real life, because as and when a firm invests more
the business risks change.
3. Gordon's approach
Dividend Yield Basis

The value of a share, like any other financial asset, is the present value of the future cash flows
associated with ownership. On this view, the value of the share is calculated as the present value
of an infinite stream of dividends. Myron Gordon's Dividend Growth Model explains how
dividend policy of a firm is a basis of establishing share value. Gordon's model uses the dividend
capitalization approach for stock valuation. The formula used is as follows:
Po = E1 (1-b)/K-br
Where, Po = price per share at the end of year 0
E1 = earnings per share at the end of year 1
(1-b) = fraction of earnings the firm distributes by way of dividends
b = fraction of earnings the firm ploughs back
k = rate of return required by shareholders
r = rate of return earned on investments made by the firm
br = growth rate of dividend and earnings
The models, provided by Walter and Gordon lead to the following implications:
If r > k Price per share increases as dividend payout ratio decreases
If r = k Price per share remains unchanged with changes in dividend payout ratio
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If r < k Price per share increases as dividend payout ratio increases.
This further implies that:
Type of firm Optimum payout ratio
For a growth firm Nil
For a normal firm Irrelevant
For a declining firm 100%
Figure 3.4: Optimum Payout Ratio
Model description:
The intrinsic value of a stock based on a future series of dividends that grow at a constant rate.
Given a dividend per year that is payable in one year, and the assumption the dividend grows at a
constant rate in perpetuity, the model solves for the present value of the infinite series of future
dividends.
• If ke>g, the firm should have zero payout and make investments.
• If ke<g, the firm should have 100% payouts and no investment of retained earnings.
• If ke=g, the firm is indifferent between dividends and investments.
Case If dividend payout ratio If dividend payout ratio

increase decrease
Growing firm(ke>g) Market value of share decreases Market value of firm increases
Declining Market value of firm increases Market value of share decreases

firm(ke<g)
Normal firm(ke=g) No change in value of share No change in value of share
Criticism:
• The assumption of no external financing apart from retained earnings, for the firm make
further investments is not really followed in the real world.
• The constant r and Ke are seldom found in real life, because as and when a firm invests
more the business risks change.
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Assumptions:
• The product of retention ratio b and the rate of return r give us the growth rate of the firm
g.
• The cost of capital ke, is not only constant but greater than the growth rate i.e. ke>g.
TYPES OF DIVIDEND POLICY
How do firms view their dividend policies?
In a classic study, Lintner surveyed a number of managers in the 1950's and asked how they set
their dividend policy. Most of the respondents said that there were a target proportion of earnings
that determined their policy. One firm's policy might be to pay out 40 % of earnings as dividends
whereas another company might have a target of 50 %. On the basis of interviews with corporate
executives, Lintner concluded that firms select target payout ratios to which they gradually adjust
actual dividend payments over time. This would suggest that dividends change with earnings.
However, dividend policies may vary between various firms as every firm sets its own policy for
dividend distribution.
Firms may pursue any one of the following dividend policies:
1. Generous or liberal dividend policy

Firms that follow this policy reward shareholders generously by stepping up dividend over the
time.
2. Stable dividend policy

Firms may follow the policy of Stable dividend payout ratio: According to this policy, the
percentage of earnings paid out of dividends remains constant. The dividends will fluctuate with
the earnings of the company. Stable rupee (inflation adjusted) dividend policy: As per this policy
the rupee level of dividends remains stable.
3. Low regular dividend plus extra dividend policy

As per this policy, a low, regular dividend is maintained and when times are good an extra dividend
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is paid. Extra dividend is the additional dividend optionally paid by the firm if earnings are higher
than normal in a given period. Although the regular portion will be predictable, the total dividend
will be unpredictable.
4. Residual dividend policy

Under this policy, dividends are paid out of earnings not needed to finance new acceptable capital
projects. The dividends will fluctuate depending on investment opportunities available to the
company.
5. Multiple dividend increase policy

Some firms follow the policy of very frequent and small dividend increases. The objective is to
give shareholders an illusion of movement and growth.
6. Erratic dividend policy

Dividends are paid erratically when the management feels it will not strain the resources of the
firm. Interests of the shareholders are not taken care of while making the dividend decisions. It
has been observed by various researchers that firms generally prefer to follow a stable or a
gradually rising dividend policy.
7. Uniform cash dividend plus bonus policy

Under this policy, the minimum rate of dividend per share is paid in cash plus bonus shares are
issued out of accumulated reserves. However bonus shares are not given compulsorily on an
annual basis. They may be given over a period of a certain number of years, for example 3-5 years
depending on the accumulated reserves of the company that can be utilized for the purpose of
issuing bonus.
STABLE DIVIDEND POLICY: A POLICY OF DIVIDEND SMOOTHING
Lintner (1956) had observed that managers tend to value stable dividend policies and corporations
tend to smooth dividends relative to earnings. That is, dividends are increased gradually and rarely
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cut, resulting in a much lower variability of dividends as compared to the variability in earnings.
Most Companies adapt a basic policy of maintaining its internal reserves to ensure stable income
far into the future, while at the same time seek to distribute a sufficient amount of earnings to
shareholders in accordance with business results. With a decrease in EPS, DPS has decreased and
with increase in earnings the dividend per share has increased .However increase in dividends is
lagging behind increase in earnings in order to ‘smoothen’ or ‘stabilize’ dividend payments over
the time. Firm may adapt any of the following stable dividend policies:
1. Stable dividend payout ratio

2. Stable dividends per share
3. A regular plus extra dividend policy
1. Stable dividend payout ratio

As per this policy the percentage of dividends paid out of earnings remains constant.
Figure 3.5: Stable Payout Ratio Policy
2. Stable dividends per share

According to this policy, the firm pays a certain fixed amount of dividend per share every year.
Annual dividend per share is increased only when the company reaches a new level of earnings
and expects to maintain it.
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3. A regular plus extra dividend policy

According to this policy a certain fixed percentage or a minimum amount of dividend is paid every
year, which is referred to as regular dividend. The firm pays ‘additional’ or ‘extra’ dividend if
earnings are higher than normal in any year.
4. Rationale for stable dividend policy

Most firms adapt a stable dividend policy. If a firm’s earnings are temporarily depressed or if it
needs a substantial amount of funds for investment, then it might well maintain its regular dividend
using borrowed funds to meet its needs, until things returned to normal. The logic or rationale for
stable dividend policy is:
• Stockholders like stable dividends--many of them depend on dividend income, and if dividends
were cut, this might cause serious hardship to them. A stable dividend policy is desirous for many
investors such as retired persons, who take dividends as a source to meet their current living
expenses.
• A stable dividend policy would reduce investor uncertainty, and reductions in uncertainty are
generally associated with lower capital costs and higher stock prices, other things being equal.
• Institutional investors generally prefer to invest in companies having stable dividend records
• Adoption of stable dividends is advantageous for a company interested in raising funds from
external sources as shareholders willingly invest in companies having stable dividends as they
have more confidence in such companies.
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The disadvantage is that such a policy might decrease corporate flexibility. Once a company
has adapted a stable dividend policy, any change in such a policy may have adverse effects on the
company image and may result in creating serious doubts in the minds of investors about financial
standing of the company, which might prove to be very dangerous for the company at a later stage.
STEPS TO BE FOLLOWED IN SETTING DIVIDENDS

The points considered by the BOD while making the dividend decision has already been discussed
earlier in 3.4 The Dividend Decision. The dividend payment procedure involves determination of
a firm’s profitable investment opportunities over a reasonable time horizon; projection of the
firm’s operating cash flows necessary for financing the projects; estimation of the residual funds
which can be made available for distribution; finalizing the target payout rates keeping in view
industry trends, financial soundness of business, future prospects, borrowing capacity etc. among
other factors; and finally setting a feasible payout rate for the current year .
The steps to be followed by a firm in setting dividends are briefly listed as follows:
a. Determine the investment opportunities with high NPV

b. Project the firm’s investment financing needs
c. Set out a long term target ratio for dividend payment
d. Set feasible current year’s target ratio
e. Set (annual/half yearly/quarterly (preferable) dividend rates
DIVIDEND AND A FIRM’S LIFE CYCLE

The payout policy of firms undergoes systematic changes over their life cycle. New firms or firms
that are in the growth stage pay very low or no dividends as during this initial growth period firms
retain funds to finance investment. Mature firms that are no longer in a growth phase often pay
high and increasing dividends. Thus, dividend payout keeps increasing as firms grow more mature
and finally d stage arises where a firm’s cash flow exceeds its capital needs, and during this
liquidation stage, excess cash is distributed generously in the form of cash dividends to the
shareholders.
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Stage of Growth
Stage I Stage II Stage III Stage IV
Introduction Rapid Growth Maturity Decline
Dividend policy
No dividend Low dividend Growing or Generous dividend
Pay-out policy increasing pay-out pay-out policy

policy
Figure3.9: Dividend and a firm's life cycle
Factors affecting Dividend Policy
A company is raising funds from different sources; it includes debentures, preference shares and
equity shares. Payment to debenture holders and to shareholders are at a fixed rate. No
commitment is made to equity share holders in terms of return. If there is a loss then no payment
will be made to them, however if there is a profit, then the company is required to decide whether
to pay dividend or not. If dividend is to be paid, then what amount to be paid is required to be
decided? Again this decision will be taken in such a way so that it maximizes wealth
of shareholders. There are various types of dividend policies – regular, stable, constant and
irregular. In this post, we will discuss various factors affecting dividend policy. A company needs
to analyze certain factors before framing their dividend policy.
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The following are the various factors/determinants that impact the dividend policy of a company:
TYPE OF INDUSTRY:
The nature of the industry to which the company belongs has an important effect on the dividend
policy. Industries, where earnings are stable, may adopt a consistent dividend policy as opposed
to the industries where earnings are uncertain and uneven. They are better off in having a
conservative approach to dividend payout.
OWNERSHIP STRUCTURE:
The ownership structure of a company also impacts the policy. A company with a higher promoter’
holdings will prefer a low dividend payout as paying out dividends may cause a decline in the
value of the stock. Whereas, a high institutional ownership will favour a high dividend payout as
it helps them to increase the control over the management.
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AGE OF CORPORATION:
Newly formed companies will have to retain major part of their earnings for further growth and
expansion. Thus, they have to follow a conservative policy unlike established companies, which
can pay higher dividends from their reserves.
THE EXTENT OF SHARE DISTRIBUTION:
A company with a large number of shareholders will have a difficult time in getting them to agree
to a conservative policy. On the other hand, a closely held company has more chances of
succeeding to finalize conservative dividend pay-outs.
DIFFERENT SHAREHOLDERS’ EXPECTATIONS:
Another factor that impacts the policy is the diversity in the type of shareholders a company has.
A different group of shareholders will have different expectations. A retired shareholder will have
a different requirement vis-a-vis a wealthy investor. The company needs to clearly understand the
different expectations and formulate a successful dividend policy. Psychologically, cash dividend
will give more satisfaction to shareholder in comparison to capital appreciation.
LEVERAGE:
A company having more leverage in their financial structure and consequently, more interest
payments may to decide for a low dividend payout, so as to increase their net worth and to make
sure that it can make payment of financial charges even in case of earning of the company is
falling. Whereas a company utilizing more of own financing will prefer high dividends.
FUTURE FINANCIAL REQUIREMENTS / REINVESTMENT OPPORTUNITY:
Dividend payout will also depend on the future requirements for the additional capital. A company
having profitable investment opportunities is justified in retaining the earnings. However, a
company with no capital requirements should opt for a higher dividend.
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BUSINESS CYCLES:
When the company experiences a boom, it is prudent to save up and make reserves for dips. Such
reserves will help a company to maintain dividend even in depressing markets to retain and attract
more shareholders.
CHANGES IN GOVERNMENT POLICIES:
There could be the change in the dividend policy of a company due to the imposed changes by the
government. The Indian government had put temporary restrictions on companies to pay dividends
during 1974-75.
PROFITABILITY:
The profitability of a firm is reflected in net profit ratio and ratio of profit to total assets. A highly
profitable company has a capacity to pays higher dividends and a company with less profit will
adopt a conservative dividend policy.
TAXATION POLICY:
The corporate taxes will affect dividend policy, either directly or indirectly. The taxes directly
reduce the residual earnings after tax available for the shareholders. If dividend income is taxable
in the hands of investor and capital gain is exempt, then company may retain its earning so as to
increase price per share, which ultimately gives higher return to investors’ and vice versa. Further
if it is possible that bifurcate all shareholders into high tax bracket or low tax bracket, accordingly
dividend policy can be framed. Finally, objective is to give maximum return to shareholders.
TRENDS OF PROFITS:
Even if the company has been profitable over the years, the trend should be properly analyzed to
find the average earnings of the company. This average number should be then studied in relation
to the general economic conditions. This will help in opting for a conservative policy if a
depression is approaching.
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LIQUIDITY:
Liquidity has a direct relation with the dividend policy. Many a times, company having high profit,
may have majority of profit blocked in working capital or it may acquire assets. In that case its
liquidity is poor. In that case company should pay less dividend. High dividend payment is
possible only if company has good earning and sound liquidity.
LEGAL RULES:
There are certain legal restrictions on the companies for dividend payments. It is legal to pay a
dividend only if the capital is not reduced post payment. These rules are in place to protect
creditors’ interest. Most importantly providing depreciation is mandatory before making payment
of dividend. Depreciation is to be provided at minimum rates provided. Providing depreciation is
very important because with that company is able to retain an amount of profit for replacement
of fixed assets in future.
INFLATION:
Inflationary environments compel companies to retain major part of their earnings and indulge in
lower dividends. As the prices rise, the companies need to increase their capital reserves for their
purchases of fixed assets. In case of inflationary situation, same quantity of closing stock will have
more valuation, so payment of tax also increases.
CONTROL OBJECTIVES:
The firms aiming for more control in the hands of current shareholders prefer a
conservative dividend payout policy. It is imperative to pay fewer dividends to retain more control
and the earnings in the company.
In a nutshell, the management of a company is completely free to frame the required dividend
policy. There are no obligations to be adhered to. So, the company needs to judiciously weight all
the above-mentioned factors and formulate a balanced dividend policy. A dividend policy can also
be revised in the wake of changes in any of the factors.
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REPAYMENT OF DEBT:
If a substantial amount of debt is required to paid, in that case even though the company has high
amount of earning, it may pay less dividend.
PROBLEM STATEMENT:
Management are in dilemma about whether to pay a large, small or zero percentage of their
earnings as dividends or to retain them for future investments. This has come about as a result of
the need for management to satisfy the various needs of shareholders. For instance, shareholders
who need money now for profitable investment opportunities would like to receive high dividends
now. On the other hand, shareholders who would like to invest in the future will prefer dividends
to be retained by the company and reinvested.
Section 71(1) of the Companies Code inter alias states that return or distribution of any of its assets
unless:
The company is able, after such payment, return or distribution, to pay its debts as they fall due.
The amount or value of such payment, return or distribution does not exceed its income surplus
immediately prior to the making of such payment, return or distribution.
There are many company characteristics that have been found to be related to dividend policy such
as the firm’s profitability, liquidity, size, ownership structure and capital structure. Among these,
profitability and liquidity are the two main variables that affect a manager’s decision to pay
dividend for that financial period. Since management are dealing with competing interest of
various shareholders, the kind of dividend policy they adopt by them may have either positive or
negative effects on the share prices of the company.
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CHAPTER -4
COMPANY PROFILE
ADOR FONTECHLIMITED
Ador Fontech limited is a frontrunner organization that operates on the philosophy of ‘partnering’
with its clients in recommending and implementing value-added reclamation, fusion, surfacing,
spraying and environmental solutions. Ador Fontech Limited was incorporated on August 22, 1974
and set its course on repair welding from December 1, 1979. Initially, it started functioning as a
trading unit under the banner of ‘Cosmic General Engineering'. Thereafter, a process was initiated to
bring in the best of technology to India from across the globe. Through dint of application
engineering, the Company enriched itself to become a manufacturing organization and today, it is a
total solution provider. The Company's maiden public issue was in the year 1995 and is currently
listed on the Bombay Stock Exchange.
VISION:
Our vision is to be considered as the partner of first choice by our customers.
MISSION:
• To “partner with our customers in implementing value-added reclamation, fusion,
surfacing, spraying and environmental solutions”.
• Shared Values and Delighting customers is the priority.
• Innovativeness and continuous improvements in all our work processes
• Growth is our way of life and Honoring commitments top down.
• Technology will be a vital enabler in our day-to-day operations.
Page 45
CORPORATE SOCIAL RESPONSIBILITY:
The Company is dedicated to conserve and preserve valuable mineral resources. Broad domain
categories include:
1. ‘Life enhancement of industrial components’ through protective coating and repair services.
2. ‘Reclamation and refurbishment of worn out components’.
Products, Services and Solutions are designed to meet the above endeavour which leaves an indelible
mark in the sphere of 'Corporate Social Responsibility'. Besides the above, as part of humanitarian
service, the Company partakes to serve the “Poorest of the Poor” in terms of providing medical aid,
food relief, rehabilitation of the destitute and homeless.
The Company believes that education is primary to every child of this country and hence, adopted a
rural school to build a class room, mathematics and physics laboratories. It has also developed a play
park for children in the vicinity of the institution. On similar lines, Special Children are a rare gift to
humanity. To depict solidarity with them participated in a general awareness program, to reach out a
helping hand. Occasionally, the Company also sponsors cultural programs to preserve the rich
traditional, but fading folklore of India.
Milestones:
• 1974- Company got incorporated.

• 1980- Company started its operations.
• 1983- Company started new reclamation welding alloy developed for the Indian Railways in
the H3 class.
• 1985 – AdorFontech finalized an exclusive distributorship for India from Sulzer Metco
(Switzerland, Singapore & USA) for thermal spray equipment and materials.
• 1999 – AdorFontech received exclusive distributorship for CEA (Italy) range of inverter
welding equipment.
• 2000 - Company bagged exclusive distributorship for CEPRO (Netherlands) range of world
class 'welding spot separation' products.
• 2002 - It received distributorship for Soitaab (Italy) range of cutting systems.
Page 46
• 2004 – AdorFontech started manufacturing unit for low heat input welding alloys at
Bangalore.
Board of Directors
Mr. A T Malkani Chairman
Mr. H P Ledwani Managing Director
Mrs. N MalkaniNagpal Promoter Director
Mr. N S Marshall Independent Director
Mr.SantoshJanakiramIyer Independent Director
Mr.Rafique Abdul Malik Independent Director
BHARAT PETROLEUM CORPORATION LTD (BPCL)
Bharat Petroleum Corporation Ltd (BPCL) operates in the petroleum industry in India. The company
operates in a single segment - Refinery and Marketing activities which includes downstream
petroleum sector. They are also engaged in the Exploration and Production of Hydrocarbons (E&P).
BPCL on a regular basis imports their LPG requirements mainly from the Middle East.
Occasional there are import requirements of Gasoil Kerosene Gasoline and Base Oil. The company
refineries consist of Mumbai Refinery Kochi Refinery Numaligarh Refinery and Bina Refinery.
BPCL exports Fuel Oil and Naphtha and Base Oil (Group II). Bharat Petroleum Corporation Ltd was
incorporated on November 3 1952 as a private limited company with the name Burmah Shell
Refineries Ltd. The company began their work on the marshland of Trombay at Bombay. The refinery
on 454 acres of land at village Mahul went on-stream on 30th January 1955 one year ahead of
schedule.
Page 47
In January 24 1976 Burmah Shell Group of Companies was taken over by the Government of India
to form Bharat Refineries Ltd. In August 1 1977 the company was renamed as Bharat Petroleum
Corporation Ltd. The company was also the first refinery to process newly found indigenous crude
(Bombay High) in the country. This project besides improve distillate yield and energy efficiency of
the company. The total of 8 numbers of In & Out convenience stores made up the millionaire club
by clocking average sales of Rs 1 million per month.
The company started operations at its Bina refinery in the central Indian state of Madhya Pradesh by
launching their crude distillation unit or CDU. The CDU at Bina was commissioned on June 29 2010.
In August 2010 Indian Oil Corporation Ltd Bharat Petroleum Corporation Ltd and Hindustan
Petroleum Corporation Limited entered into a memorandum of understanding (MoU) with Gujarat
State Petroleum Corp Ltd to form a joint venture for trunk gas pipelines.
In 2011 Tyre manufacturer Goodyear India entered into an agreement with PSU major Bharat
Petroleum Corporation Ltd to open tyre care shops at some of their petrol pumps. BPCL discovers of
oil and gas in Sergipe-Alagoas Basin Brazil. Bharat Petroleum Corporation Ltd. has signed an MOU
with LG Chem South Korea for a Joint Venture to set up a petrochemical plant adjacent to its Kochi
Refinery Complex. The company makes discovery of hydrocarbons in Espirito Santo Bash Offshore
Brazil and Cauvery On land in Tamil Nadu. Bharat Petroleum Corporation Ltd (BPCL) is in plans
for investments of up to Rs 45000 crores by 2017 towards upstream projects as well as downstream
expansion. BPCL discovers new oil in the deep water of Sergipe - Alagoas Basin Brazilian 2013.
Petro bras completes formation test in Far fan area in Sergipe-Alagoas Basin Brazil. BPRL announces
now natural gas discovery in offshore Mozambique.
Board of Directors
D Rajkumar Chairman & Managing Director
P Balasubramanian Director – Finance
Rajesh K Mangal Director
Gopal C Nanda Director
Page 48
CREAVTIVE CASTINGS
Established in 1980 Creative is the India’s most trusted & quality investment casting manufacturer
& Exporter by lost wax process with an installed capacity of 1000 MT/annum. At Creative we are
committed to supply precision parts with guaranteed material & casting quality. We have the state of
the art facilities & expertise to back our commitment.
Creative Castings Ltd plant spread over 10000 Sq. Mts. area with a production area of 3500 Sq.
Mts.& is equipped with latest technology production, testing & measurement facilities.& with a full
standby captive power generation for uninterrupted production. Supply over 5000 different types of
castings in as cast & in fully machined conditions to almost every field of engineering applications
such as pumps & valves, Defence, oil & refinery, fire control equipment’s automobiles etc. An
experience of more than 30 years in design & manufacture of complicated parts weighing from few
grams to 120 kg.
Creative can handle large volumes 100000 pieces /month Ability to handle over more than 250
different alloys to customized specification. Creative has strong business relationship since more than
20 years with his 50% world largest customers Certifications:
• ISO 9001-2008 by TUV NORD

• PED 97/23/EC
• AD 2000 –MERKBLATT W0
• WELLKNOWN FOUNDRY BY CBB GOVT.OF INDIA
• ISO 14001 2004 by TUV NORD
• ISO 18001 2007 by TUV NORD
• Engineers India Limited
Board of Directors
Dhirubhai H Dand Chairman
V D Patel Executive Director
N C Vadgama Director
Page 49
J S Thanki Director
P M Nadpara Director
NaimishThanki Independent Director
FAIRDEAL FILAMENTS
Fairdeal Filaments Ltd. a Shahlon group company has established its presence in sizing textile
business in 1990 with just 3 polyester yarn sizing machines in Surat (Gujarat) - India. It has
established scalable production facilities and service support for manufacturing of various synthetic
yarns and fabrics with the help of hi-tech and advance technology. Its shares are listed on leading
BSE.
Shahlon group ventured into textile business in 1984 with 12 traditional power looms in Surat,
Gujarat (India) and steadily expanded into twisting, sizing, texturizing and weaving home textiles
and garments. Forward integration has been the cornerstone of evolution and growth of the group. It
is among the largest fabrics manufacturers in India. In 1994, we became public limited company.
Within a span of 23 years it has grown to become a manufacturer of world class synthetic yarns,
beams, fabrics, home textile and garments selling directly to manufacturers, exporters, defence and
wholesale. Today it is a group having turnover of over Rs 175 crores and employees’ strength of over
1000. Besides group turnover of Rs 175 crores, It also market Reliance’s synthetics yarn products of
around Rs 700 crores.
In the year 2008 the company has successfully installed fourteen TFOs, Himson make 1 texturising
machine and 1 texturizing machine in April’2008 at a total cost of Rs 6.05 crore at Karanj. Your
company has successfully implemented RAMCO ERP software in the organization. Necessary term
finance for expansion were secured from Bank of Baroda.
Fairdeal is engaged in manufacturing of texturized, twisted and sized yarn and weaving on water-jet
looms. The basic raw material for manufacturing company’s product is POY, FDY, PFY etc. The
company procures basic raw material from big Spinners who controls the downstream textile
industry.
Page 50
Board of Directors
Jayantilal R Shah Chairman
Dhirajlal R Shah Managing Director
Jitesh R Varkal Company Secretary
Rajendra K Desai Non-Executive Independent Director
Nandish S Vin Non-Executive Independent Director
HINDUSTAN PETROLEUM CORPORATION LIMITED
HPCL is a Government of India Enterprise with a Navratna Status, and a Forbes 2000 and
Global Fortune 500 company. It had originally been incorporated as a company under the Indian
Companies Act 1913.
It is listed on the Bombay Stock exchange (BSE) and National Stock Exchange (NSE), India.
HPCL owns & operates 2 major refineries producing a wide variety of petroleum fuels & specialties,
one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per Annum (MMTPA) capacity and the
other in Visakhapatnam, (East Coast) with a capacity of 8.3 MMTPA. HPCL also owns and
operates the largest Lube Refinery in the country producing Lube Base Oils of international
standards, with a capacity of 428 TMT. This Lube Refinery accounts for over 40% of the India's total
Lube Base Oil production. Presently HPCL produces over 300+ grades of Lubes, Specialties and
Greases.
HPCL in collaboration with M/s Mittal Energy Investments Pvt. Ltd. is operating a 9 MMTPA
capacity Refinery at Bathinda with 49% equity in Punjab and also holds equity of about 16.95% in
the 15 MMTPA Mangalore Refinery and Petrochemicals Ltd. (MRPL).HPCL is committed to
achieve the economic, ecological & social responsibility objectives of sustainable development
consistently through varied operations and activities. HPCL’s focus areas are in the fields of Child
Care, Education, Health Care, Skill Development & Community Development, touching lives of
weaker section of society.
Page 51
Board of Directors
Mr.M.K.Surana Chairman and Managing Director
Mr. P K Joshi Director- Human Resources
Mr.Ramaswamy Director –Finance
Mr. S Jeyakrishnan Director – Marketing
LARSEN & TOUBRO INFOTECH LTD..,
Larsen & Toubro InfoTech, a subsidiary of Larsen & Toubro, is a global IT solutions & services
company based in Mumbai, India. L&T InfoTech is ranked number 6 in India IT companies in 2013–
2014. The company has 39 registered offices in 23 countries. It has strategic alliances with web
Methods, IBM, Microsoft, Business Objects, Oracle, Computer Associates, Siebel, Oracle, SAP,
PeopleSoft, SAP, JD Edwards, Matrix One, Sun Microsystems, and HP. Larsen & Toubro InfoTech
was formerly known as L & T Information Technology Limited. The company is headquartered in
Mumbai, India. It has additional offices in Pune, Chennai, Mysore, Bangalore, and Hyderabad, India.
Larsen & Toubro InfoTech Limited operates as a subsidiary of Larsen & Toubro, Ltd.
Operates as a technology, engineering, construction, and manufacturing company worldwide. The

company operates through six divisions: Engineering and Construction Projects (E&C), Heavy
Engineering (HED), Engineering Construction and Contracts (ECC), Electrical and Electronics
(EBG), Machinery and Industrial Products (MIPD), and Information Technology and Engineering
Services.
L&T InfoTech is a wholly-owned subsidiary of the USD 12.8 billion Larsen & Toubro, India’s ‘Best
Managed Company’ with presence in construction, engineering, manufacturing and financial
services. One of the fastest growing IT Services companies, L&T InfoTech is ranked by NASSCOM
as the 9th largest software & services exporter from India and among the top 20 IT BPO Employers
in 2010-2011.
Page 52
N G INDUSTRIES
N G Industries Ltd was established in 1994 as a new Company to foray into the Healthcare sector at
a time when few private sector such initiatives had come up.
First Division- ‘N G Medicare & Calcutta Hope Infertility Clinic’ came into operation in December
1995 as a complete Diagnostic Centre with Daycare and Nursing Home facilities providing a wide
range of Medical Services in fields of Pathology, Radiology, Cardiology, Gastroenterology,
Infertility ,Minimal Invasive Surgeries as well as a Multispecialty Clinic.
N G Medicare within a couple of years made a mark for itself in the city and was a well known brand
in healthcare services in Kolkata as well as suburbs and specially in South Kolkata was termed as the
‘Best In South’. In 2006 the Company started its second Division in the name of ‘N G Nursing
Home’-a 53 Bedded Indoor establishment in South Kolkata and thereby extended its services to major
Surgeries including General Surgery, Joint Replacements, and Urology etc.
Mission: Our Mission is to bring Complete Healthcare of excellent Standards in an Affordable

manner to all Citizens.
Board of Directors
Rajesh Goenka Chairman
Dipak Kumar Shaw Company Secretary
Vinod Kumar Singhi Non Executive Independent Director
Subash R Kamath Non Executive Independent Director
RajkumarBajoria Non Executive Independent Director
Jagdish Chand Kumbhat Non Executive Independent Director
NehaGoenka Non Independent &Non-Executive Director
Page 53
SONATA SOFTWARE’S LTD..,
Sonata software Limited is a Global IT Services company, that provides services in business
intelligence and analytics, application development management (ADM), mobility, cloud, social
media, testing, enterprise services (ERP and CRM), and infrastructure management services. It is
headquartered in Bangalore, India. Founded in 1986 as the IT division of Indian Organic Chemicals,
the company spun off as an independent entity in 1994. The company expanded and went public in
1998. In 2001, the company obtained SEI-CMMI Level 5 certification and in the following years, set
up offices in the US, Europe and Asia Pacific. Sonata Software currently has about 3000 employees
and annual revenue of more than $200 million. Sonata has strategic alliances with Microsoft, IBM,
SAP, Oracle and HP. They offer specialized services in Azure, Brick-and-Click, hybrids, and
Microsoft Dynamics.
In 2013, Sonata Software was named by Microsoft as "Cloud Partner of the Year" in India. In March
2014, it opened an American branch in Redmond, Washington.[6] In August 2014, Sonata Software
bought a controlling stake in Rezopia’s, a travel reservation agency that was the first to use the
cloud for taking reservations. It also acquired Xyka, Rezopia's service provider.
In April 2015, Sonata Software announced that it had entered into a partnership with the National
Institute of Technology, Tiruchirappalli to promote entrepreneurship by providing resources for NIT,
Tiruchirappalli's Centre for Entrepreneurship Development and Incubation. In August 2015, it
acquired a 100% stake in Halosys Technologies, which specialized in mobile enterprise. In October
2015, Sonata Software acquired Interactive Business Information Systems Inc. (IBIS), a
Georgia based supply chain Software Company founded in 1989.
In August 2016, Parable, the US-based provider of CASB-enabled cloud security solutions for
Enterprises announced a partnership with Sonata Software. Sonata Software Limited, Sonata
Software FZ — LLC, Sonata Information Technology Limited (SITL), Sonata Software North
America Inc., Sonata Software GmbH are the subsidiaries.
Page 54
Board of Directors
Pradip P Shah Chairman
S B Ghia Director
RadhikaRajan Director
B K Syngal Director
P Srikar Reddy M D & CEO
VirenRaheja Director
S N Talwar Director
Page 55
CHAPTER -5
DATA ANALYSIS USING MODELS
ADOR FONTECH Ltd..,
WALTER’SMODEL:
P=D+(r) ((E-D)/Ke)
KE
p= [(3+ (0.1792) ((8.65-3)/0.0380))/0.0380]
p= [(3+ (0.1792) (148.68))/0.0380]
p= [(3+26.64)/0.0380]
p=780
Interpretation:
From the above analysis, the rate of return on firm’s investment is 17.92% and cost of equity is 3.8%.
It is clear that ADOR FONTECH is a growing firm, because the rate of return is greater than cost of
equity i.e., (17.92% > 3.8%)
GORDON’S GROWTH MODEL:
P= {EPS*(1-b)}
(K-g)
P= [(8.65*(1-0.5845))/ (0.0380-0.90)]
P= [(8.65*0.4155)/-0.862]
P= [3.5941/-0.862]
P= -4.1695
Page 56
Interpretation:
From the above analysis, the growth rate on firm’s investment is 32% and cost of capital is 3.8%. It
is clear that ADOR FONTECH is a declining firm, because cost of capital is lesser than growth rate
i.e., (3.8% < 90%)
MODIGLIANI & MILLER MODE:
R= [(dividend + (p1-p0))/p0]
R= [(150+ (85.05-117.6))/117.6]
R= [(150+ (-32.55))/117.6]
R=[117.45/117.6]
R= 0.9987
p1= p0* (1+k) – d1
85.05= 117.6 * (1+k) – 150
85.05 = 117.6 + 117.6k – 150
85.05 – 117.6= 117.6k – 150
-32.55= 117.6k – 150
-32.55 + 150= 117.6k
117.45= 117.6k
K= 117.45 / 117.6
K= 0.9987
Interpretation:
Page 57
The rate of return (r) will be equal to the discount rate (k). As a result the price of each share must
adjust so the rate of return, which is composed of the rate of dividends and capital gains on every
share, will be equal to the discount rate and be identical for all shares.
The return is computed above.
As hypothesized, R equals K, otherwise resulting: the lower yielding securities trade for the higher
yielding securities, in turn reducing the price of the low yielding securities and increasing the price
of the high yielding securities.
The switching continues, until the differentials in rates of return are eliminated.
BHARAT PETROLEUM CORPORATION LTD..,
WALTER’S MODEL:
P=D+(r) ((E-D)/Ke)
KE
p= [11+ (0.2621) ((30.80-11)/0.0432))/0.0432]
p= [(11+ (0.2621)(19.8/0.0432))/0.0432]
p= [(11+120.1292)/0.0432]
p=3035.3773
Interpretation:
From the above analysis, the rate of return on firm’s investment is 26.21% and cost of equity is
4.32%. It is clear that BPCL is a growing firm, because the rate of return is greater than cost of equity
i.e., (26.21% > 4.32%)
P= {EPS*(1-b)}
(K-g)
P= [(30.80*(1-0.6891))/ (0.0432-11)]
Page 58
P= [(30.80*0.3109)/-10.9568
P= [9.5757/-10.9568]
P= -0.8739
Interpretation:
From the above analysis, the growth rate on firm’s investment is 4.4% and cost of capital is 4.32%.
It is clear that BPCL is a declining firm, because the cost of capital is lesser than growth rate i.e.,
(4.32% < 110%)
MODIGLIANI & MILLER MODEL:
R= [(210+ (634.55-450))/450]
R= [(210+ (184.55))/450]
R= [394.55/450]
R= 0.8768
p1= p0* (1+k) – d1
634.55= 450 * (1+k) – 210
634.55= 450 + 450k – 210
634.55 – 450= 450k – 210
184.55= 450k – 210
184.55 + 210= 450k
394.55= 450k
K= 394.55 / 450
K= 0.8768
Interpretation:
Page 59
CREATIVE CASTINGS
WALTER’S MODEL:
P=D+(r) ((E-D)/Ke)
KE
p= [(10+ (0.1829) ((24.43-10) / 0.0356)) / 0.0356]
p= [(10+ (0.1829) (405.3371)) / 0.0356]
p= [(10+74.1361) / 0.0356]
p= 2363.3736
Interpretation:
3.56%. It is clear that CREATIVE CASTINGS is a growing firm, because the rate of return is greater
than cost of equity i.e., (18.29% > 3.56%)
GORDON’S GROWTH MODEL
P= {EPS*(1-b)}
(K-g)
Page 60
P= [(24.43*(1-0.8476)) / (0.0356-0.7)]
P= [(24.43*0.1524) / -0.6644]
P= [3.7231/-0.6644]
P= - 5.6037
Interpretation:
From the above analysis, the growth rate on firm’s investment is 15% and cost of capital is 3.56%. It
is clear that CREATIVE CASTINGS is a declining firm, because the cost of capital is lesser than
growth rate i.e., (3.56% < 70%)
R= [(100+ (37.5-12.5)) / 12.5]
R= [(100+ (25)) / 12.5]
R= [125 / 12.5]
R= 10
p1= p0* (1+k) – d1
37.5= 12.5 * (1+k) – 100
37.5= 12.5 + 12.5k – 100
37.5 – 12.5= 12.5k – 100
25= 12.5k – 100
25 + 100= 12.5k
125= 12.5k
K=125 / 12.5
K= 10
Interpretation:
Page 61
FAIRDEAL FILAMENTS LTD..,
WALTER’S MODEL:
P=D+(r) (E-D)/Ke)
KE
p= [(1.25+ (0.3468) ((3.90-1.25) / 1.5368)) / 1.5368]
p= [(1.25+ (0.3468) (1.7244)) / 1.5368]
p= [(1.25+0.5980) / 1.5368]
p=1.2025
Interpretation:
153.68%. It is clear that FAIRDEAL FILAMENTS is a declining firm, because the rate of return is
lesser than cost of equity i.e., (34.68% < 153.68%)
P= {EPS*(1-b)}
(K-g)
Page 62
P= [(3.90*(1-0.2378)) / (1.5368-3.30)]
P= [(3.90*0.7622) / 1.7632]
P= [2.9726 / 1.7632]
P= 1.6859
Interpretation:
From the above analysis, the growth rate on firm’s investment is 330% and cost of capital is 153.68%.
It is clear that FAIRDEAL FILAMENTS is a growing firm, because the cost of capitalist greater than
the growth rate i.e., (153.68% > 330%)
R= [(12.50+ (31.35-37))/37]
R= [(12.50+ (-5.65))/37]
R= [6.85 / 37]
R= 0.1851
p1= p0* (1+k) – d1
31.35= 37 * (1+k) – 12.50
31.35= 37 + 37k – 12.50
31.35 – 37= 37k – 12.50
-5.65= 37k – 12.50
-5.65 + 12.50= 37k
6.85= 37k
K= 6.85 / 37
K= 0.1851
Interpretation:
Page 63
HINDUSTAN PETROLEUM CORPORATION LTD..,
WALTER’S MODEL:
P=D+(r) ((E-D)/Ke)
KE
p= [(2.5+ (0.1695) ((31.54 - 2.5) / 0.4618)) / 0.4618]
p= [(2.5+ (0.1695) (62.8844)) / 0.4618]
p= [(2.5+10.6589)/ 0.4618]
p= 28.4648
Interpretation:
46.18%. It is clear that HPCL is a declining firm, because the rate of return is lesser than cost of
equity i.e., (16.95% < 46.18%)
P= {EPS*(1-b)}
(K-g)
Page 64
P= [(31.54*(1-0.6894))/ (0.4618-0.1140)]
P= [(31.54*0.3106) / 0.3478]
P= [9.7963 /0.3478]
P= 28.1665
Interpretation:
From the above analysis, the growth rate on firm’s investment is 11.40% and cost of capital is
46.18%. It is clear that HPCL is a growing firm, because the cost of capital is greater than the growth
rate i.e., (46.18% > 11.40%)
R= [(170+ (441.2-280.04))/ 280.04]
R= [(170+ (161.16))/ 280.04]
R= [331.16 / 280.04]
R= 1.1825
p1= p0* (1+k) – d1
441.2= 280.04 * (1+k) – 170
441.2= 280.04 + 280.04k – 170
441.2 – 280.04= 280.04k – 170
161.16= 280.04k – 170
161.16 + 170= 280.04k
331.16= 280.04k
K= 331.16 / 280.04
K= 1.1825
Interpretation:
Page 65
LARSEN & TOUBRO INFOTECH LTD..,
WALTER’S MODEL:
P=D+(r) ((E-D)/Ke)
KE
p= [(12.5+ (0.5383) ((82.78-12.5) / 0.4949)) / 0.4949]
p= [(12.5+ (0.5383) (142.0085)) / 0.4949]
p= [(12.5+76.4432) / 0.4949]
p= 179.7195
Interpretation:
49.49%. It is clear that L&T InfoTech is a growing firm, because the rate of return is greater than
cost of equity i.e., (53.83% > 49.49%)
P= {EPS*(1-b)}
(K-g)
P= [(82.78*(1-0.3728))/ (0.4949-0.14)]
Page 66
P= [(82.78*0.6272) / 0.3549]
P= [51.9196 / 0.2649]
P= 195.9970
Interpretation:
It is clear that L&T INFOTECH is a growing firm, because the cost of capital is greater than the
growth rate i.e., (49.49% > 14%)
R= [(2150+ (786.95-900))/ 900]
R= [(2150+ (-113.05)) / 900]
R= [2036.95 / 900]
R= 2.2633
p1= p0* (1+k) – d1
786.95= 900 * (1+k) – 2150
786.95= 900 + 990k – 2150
786.95 – 900= 900k – 2150
-113.05= 900k – 2150
-113.05 + 2150= 900k
2036.95= 900k
K= 2036.95 / 900
K= 2.2633
Interpretation:
Page 67
NG INDUSTRIES LTD..,
WALTER’S MODEL:
P=D+(r) ((E-D)/Ke)
KE
p= [(3.5 + (0.1593) ((3.93-3.5)/ 0.0419))/ 0.0419]
p= [(3.5+ (0.1593) (10.2625)) / 0.0419]
p= [(3.5+1.6348)/ 0.0419]
p= 122.5489
Interpretation:
4.19%. It is clear that NG INDUSTRIES is a growing firm, because the rate of return is greater than
cost of equity i.e., (15.93% > 4.19%)
P= {EPS*(1-b)}
(K-g)
P= [(3.93*(1-0.3359))/ (0.0419-0.10)]
Page 68
P= [(3.93*0.6641) / 0.0581]
P= [2.6099 / 0.0581]
P=44.9208
Interpretation:
It is clear that NG INDUSTRIES is a declining firm, because the cost of capital is lesser than the
growth rate i.e., (4.19% < 100%)
R= [(35+ (74-75)) / 75]
R= [(35+ (-1)) / 75]
R= [34 / 75]
R= 0.4533
p1= p0* (1+k) – d1
74= 75 * (1+k) – 35
74= 75 + 75k – 35
74 – 75=75k – 35
-1= 75k – 35
-1 + 35= 75k
34= 75k
K= 34 / 75
K= 0.4533
Interpretation:
Page 69
SONATA SOFTWARES LTD..,
WALTER’S MODEL:
P=D+(r) ((E-D)/Ke)
KE
p= [(4.75+ (0.424) ((16.27-4.75) / 1.2038)) / 1.2038]
p= [(4.75+ (0.424) (9.5697)) / 1.2038]
p= [(4.75+4.0575) / 1.2038]
p= 7.3164
Interpretation:
120.38%. It is clear that SONATA SOFTWARES is a declining firm, because the rate of return is
lesser than cost of equity i.e., (42.4% <120.38%)
P= {EPS*(1-b)}
(K-g)
P= [(16.27*(1-0.2223)) / (1.2038-2.55)]
Page 70
P= [(16.27*0.7777) / -1.3462]
P= [12.6532 / -1.3462]
P= -9.3992
Interpretation:
It is clear that SONATA SOFTWARES is a growing firm, because the cost of capital is lesser than
the growth rate i.e., (120.38% > 255%)
R= [(1050+ (193-176.35))/ 176.35]
R= [(1050+ (16.65)) / 176.35]
R= [1066.65 / 176.35]
R= 6.0485
p1= p0* (1+k) – d1
193= 176.35 * (1+k) – 1050
193= 176.35 + 176.35k – 1050
193 – 176.35= 196.35k – 1050
16.65= 176.35k – 1050
16.65 + 1050= 176.35k
1066.65= 176.35k
K= 1066.65 / 176.35
K= 6.0485
Interpretation:
Page 71
Page 72
CHAPTER -6
FINDINGS, SUGGESTION AND CONCLUSION
Dividend Trend of BSE firms: The average dividend paid by 8 sample companies from 2013-2018
is given as follows:
TABLE: 5.1
Year Adore BPCL Creative Fairdeal HPCL L&T NG Sonata

Fontech Casting filaments InfoTech Industries Software
2013 175 110 0 12.50 85 0 35 100
2014 175 170 0 12.50 155 0 35 275
2015 175 225 30 5.00 245 0 35 425
2016 175 150 30 0 160 685 35 550
2017 150 10 100 12.50 11 800 35 550
2018 150 70 100 12.50 25 1250 35 675
Page 73
DIVIDEND
40
35
30
25
20
15
10
5
0
2013 2014 2015 2016 2017
#REF!
Graph 5.1 (Dividend)
INTERPRETATION:
The graph above shows that DPS paid during the period 2013-2018, the high dividend paid has
increased during 2013 by Adore fontech ltd.., compare to other 7 companies, the high dividend paid
has increased during 2014 by Sonata software Ltd.., compare to other 7 companies, the high dividend
paid has increased during 2015 by again Sonata software ltd.., compare to other companies, the high
dividend paid has increased rate during 2016 by L & T InfoTech ltd.., compare to other companies,
and in 2017-18 again L & T InfoTech company paid high dividend at an increasing rate.
Dividend per Share of BSE:
The average Dividend per Share (DPS) paid by the selected firms during the period 2013-2018 is shown below:
TABLE: 5.2
AVERAGE DPS
YEAR Adore BPCL Creative Fairdeal HPCL L&T NG Sonata

2013 3.50 11.00 0 1.25 8.50 18.50 3.50 1.25
Page 74
2014 3.50 17.00 0 1.25 15.50 14.25 3.50 2.75
2015 3.50 22.50 0 0.50 24.50 16.25 3.50 4.25
2016 3.50 15.00 3 0 16.00 18.25 3.50 5.50
2017 3.00 19.50 10 1.25 1.10 14.00 3.50 5.50
2018 3.00 11.00 10 1.25 2.50 16.00 3.50 6.75
Average DPS
30
25
YEAR
20 2013
2014
15
2015
10 2016
2017
5 2018
0
AVERAGE DPS
Graph 5.2 (AVERAGE DPS)
INTERPRETATION:
The graph above shows that DPS paid during the period 2013-2018, the average dividend paid has
increased at an increased rate during 2013 by 20.35%, the average dividend paid has increased at an
increased rate during 2014 by 25.50%, the average dividend paid has increased at an increased rate
Page 75
during 2015 by 32.20%, the average dividend paid has increased at a decreased during 2016 by
25.75%, and in 2017, the average dividend paid has increased at a decreased during 2018, it shows
an increased at a decreasing rate of average dividend per share.
EARNINGS PER SHARE:
The Earnings per Share (EPS) paid by the selected firms during the period 2013 -2018 is shown
below:
TABLE 5.3 Earning per share
EARNING PER SHARE
YEAR Adore BPCL Creative Fairdeal HPCL L&T NG Sonata

2013 5.00 17.83 15 2.01 6.59 6.88 4.34 5.35
2014 6.99 18.03 15 2.71 7.07 8.54 4.54 7.40
2015 7.44 22.16 15 3.44 9.82 9.53 4.47 12.71
2016 5.31 37.29 16.25 2.83 30.62 49.25 4.57 15.08
2017 4.11 40.20 36.20 2.91 54.05 56.91 4.24 14.86
2018 3.98 51.53 151 3.32 47.37 64.65 2.81 18.31
Page 76
160
140
120 YEAR
2013
100
2014
80
2015
60 2016
40 2017
2018
20
0
AVERAGE EPS
GRAPH 5.3 EARNING PER SHARE
INTERPRETATION:
The graph above shows that EPS made during the period 2013-2018, where the EPS get high earning
during the year 2013, 2014 & 2015 in BPCL, the EPS get high profitability in L & T InfoTech during
2016-17 and in 2018 earing is more in Creative Casting Ltd.., its shows other companies have less
outstanding share and market participants frequently use to gauge the profitability of a company
before buying its share.
TARGET PAYOUT RATIO:
TABLE 5.4
YEAR COMPANY
Adore BPCL Creative Fairdeal HPCL L&T NG Sonata

2013 35 6.17 0 6.22 12.90 0 8.06 18.69
2014 25.04 9.43 0 4.61 21.92 0 7.71 37.16
2015 23.52 10.15 2 1.45 24.95 0 7.83 33.44
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2016 32.96 4.02 1.85 0 5.22 13.91 7.66 36.47
2017 36.50 0.25 2.76 4.29 0.20 14.06 8.25 37.01
2018 37.69 1.36 0.66 3.76 0.53 19.33 12.45 36.86
TARGET PAYOUT RATIO
Sonata Software
NG Industries
L & T InfoTech
HPCL
Fairdeal filaments
Creative Casting
BPCL
Adore Fontech
0 5 10 15 20 25 30 35 40
2018 2017 2016 2015 2014 2013
Graph 5.4 (TAREGET PAYOUT RATIO)
INTERPRETATION:
The above graph shows that target payout ratio between 2013-2018, during the year 2013 adore
fontech reached the target payout ratio, during the year 2014-2015-2016 and 2017 sonata software
ltd.., reached the target payout ratio, during the year 2018 again the Ador fontech reaches the target
payout ratio.
RELATIONSHIP BETWEEN PROFIT GRWOTH DIVIDEND AND SIZE
Table 5.5
Sl
no. COMPANY GROWTH EPS
1 ADOR FONTECH -0.90 8.65
Page 78
2 BPCL 1.10 30.80
3 CREATIVE CASTINGS 7.00 24.43
4 FAIRDEAL
FILAMENTS 3.30 3.90
5 HPCL 11.40 31.54
6 L&T INFOTECH 1.40 82.78
7 NG INDUSTRIES 0.10 3.93
*8 SONATA SOFTWARES 2.55 16.27
GOWTH AND SIZE OF DIVIDEND

90
80
70
60
50
40
30
20
10
0
-10
FILAMENTS
NG INDUSTRIES
HPCL
CASTINGS
BPCL
L&T INFOTECH
ADOR FONTECH
SOFTWARES
CREATIVE
FAIRDEAL
SONATA
1 2 3 4 5 6 7 *8
GROWTH EPS
GRAPH 5.5 : GROWTH AND SIZE OF DIVIDEND
INETRPRETATION:
The above graph shows that HPCL have a high growth and Ador fontech ltd have a low growth but
in EPS L & T InfoTech and HPCL have a high Earning per Share and Ador fontech and NG industries
have low earning per share.
Page 79
REGRESSION ANALYSIS
1. Ador Fontech ltd..,
Model Summary
Model R R Square Adjusted R Std. Error of
Square the Estimate
a
1 .091 .008 -.240 28.10172
a. Predictors: (Constant), DIVIDEND PAYOUT RATIO
ANOVAa
Model Sum of df Mean F Sig.
Squares Square
Regression 26.507 1 26.507 .034 .864b
1 Residual 3158.826 4 789.707
Total 3185.333 5
a. Dependent Variable: STOCK PRICE
b. Predictors: (Constant), DIVIDEND PAYOUT RATIO
Coefficients
Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta
Page 80
(Constant) 112.543 67.085 1.678 .169

1 DIVIDEND PAYOUT -.381 2.079 -.091 -.183 .864
RATIO
Interpretation
The R Square between ADOR FONTEC DPS and stock price found to be 0.008, which
shows very low correlation between the two. If DPS increases by one the stock price decreases by
0.381. The DPS does not impact the stock prices as significance value is above 0.05(i. e., sig =
0.864)
2. BPCL
Model Summary
Square the Estimate
a
1 .641 .411 .263 178.56882
ANOVAa
Squares Square
Regression 88889.736 1 88889.736 2.788 .170b
1 Residual 127547.293 4 31886.823
Total 216437.028 5
Coefficients
B Std. Error Beta
(Constant) 398.755 125.305 3.182 .033
1 DIVIDEND PAYOUT 32.536 19.487 .641 1.670 .170
RATIO
Page 81
Interpretation
The R Square between BPCL DPS and stock price found to be 0.411, which shows
moderate correlation between the two. If DPS increases by one the stock price increases by 32.536.
The DPS does not impact the stock prices as significance value is above 0.05(i. e., sig = 0.170)
3. CREATIVE CASTING LTD..,
Model Summary
Square the Estimate
a
1 .245 .060 -.175 167.77701
ANOVA
Squares Square
Regression 7195.766 1 7195.766 .256 .640b
1 Residual 112596.502 4 28149.126
Total 119792.269 5
Coefficients
B Std. Error Beta
(Constant) 66.751 88.675 .753 .493
1 DIVIDEND PAYOUT 32.418 64.119 .245 .506 .640
RATIO
Page 82
Interpretation
The R Square between CREATIVE CASTING LTD.., DPS and stock price found to be
0.060, which shows very low correlation between the two. If DPS increases by one the stock price
increases by 32.418. The DPS does not impact the stock prices as significance value is above
0.05(i. e., sig = 0.640)
4. FAIR DEAL FILAMENTS LTD..,
Model Summary
Square the Estimate
a
1 .049 .002 -.247 41.23122
ANOVAa
Squares Square
Regression 16.312 1 16.312 .010 .927b
1 Residual 6800.053 4 1700.013
Total 6816.365 5
Coefficients
B Std. Error Beta
(Constant) 46.223 32.292 1.431 .226
1 DIVIDEND PAYOUT -.797 8.133 -.049 -.098 .927
RATIO
Interpretation
The R Square between FAIR DEAL FILAMENTS LTD.., DPS and stock price found to be
0.002, which shows very low correlation between the two. If DPS increases by one the stock price
decreases by 0.797. The DPS does not impact the stock prices as significance value is above 0.05(i.
e., sig = 0.927)
Page 83
5. HPCL
Model Summary
Square the Estimate
a
1 .719 .517 .397 173.71565
ANOVA
Squares Square
Regression 129321.665 1 129321.665 4.285 .107b
1 Residual 120708.502 4 30177.125
Total 250030.167 5
Coefficients
B Std. Error Beta
(Constant) 292.677 106.316 2.753 .051
1 DIVIDEND PAYOUT 14.969 7.231 .719 2.070 .107
RATIO
Interpretation
The R Square between HPCL DPS and stock price found to be 0.517, which shows
moderate correlation between the two. If DPS increases by one the stock price increases by 14.696.
The DPS does not impact the stock prices as significance value is above 0.05(i. e., sig = 0.107)
6. L & T InfoTech
Model Summary
Square the Estimate
a
1 .960 .921 .901 227.69786
Page 84
ANOVA
Squares Square
Regression 2411141.845 1 2411141.845 46.506 .002b
1 Residual 207385.270 4 51846.317
Total 2618527.115 5
Coefficients
B Std. Error Beta
(Constant) -31.418 129.854 -.242 .821
1 DIVIDEND PAYOUT 78.434 11.501 .960 6.819 .002
RATIO
Interpretation
The R Square between L & T InfoTech.., DPS and stock price found to be 0.060, which
shows very low correlation between the two. If DPS increases by one the stock price increases by
78.434. The DPS does impact the stock prices as significance value is below 0.05(i. e., sig = 0.022)
7. NG industries
Model Summary
Square the Estimate
a
1 .121 .015 -.232 13.87348
ANOVAa
Squares Square
Regression 11.360 1 11.360 .059 .820b
1
Residual 769.893 4 192.473
Page 85
Total 781.253 5
Coefficients
B Std. Error Beta
(Constant) 78.547 29.286 2.682 .055
1 DIVIDEND PAYOUT -.806 3.318 -.121 -.243 .820
RATIO
Interpretation
The R Square between NG Industries.., DPS and stock price found to be 0.015, which
shows very low correlation between the two. If DPS increases by one the stock price decreases by
0.806. The DPS does not impact the stock prices as significance value is above 0.05(i. e., sig =
0.820.
8. Sonata software ltd..,
Model Summary
Square the Estimate
a
1 .756 .571 .464 71.18299
ANOVAa
Squares Square
Regression 27008.844 1 27008.844 5.330 .082b
1 Residual 20268.071 4 5067.018
Total 47276.915 5
Coefficients
Page 86

B Std. Error Beta
(Constant) -149.689 148.402 -1.009 .370
1 DIVIDEND PAYOUT 10.098 4.374 .756 2.309 .082
RATIO
Interpretation
The R Square between NG Industries.., DPS and stock price found to be 0.571, which
shows moderate correlation between the two. If DPS increases by one the stock price increases by
10.098. The DPS does impact the stock prices as significance value is below 0.05(i. e., sig = 0.082)
WALTER MODEL:
GROWING FIRM DECLINING FIRM
ADOR FONTECH HPCL
BPCL FAIRDEAL FILAMENTS
CREATIVE CASTINGS SONATA SOFTWEARS
L & T INFOTECH
NG INDUSTRIES
GROWING FIRM DECLINING FIRM
FAIRDEAL FILAMENTS ADOR FONTECH
HPCL BPCL
L & T INFOTECH CREATIVE CASTINGS
NG INDUSTRIES SONATA SOFTWEARS
TCFC FINANCE
Page 87
MODIGLIANI & MILLER MODEL
R (rate of return) equals the K (discounted rate) in selected firms, otherwise resulting: the lower
yielding securities trade for the higher yielding securities. The switching continues, until the
differentials in rates of return are eliminated.
And also being R=K, none of the selected firms pays dividend, thus we can say that M&M theorem
is an irrelevant model to dividend policy.
A company can retain its profit for the purpose of re-investment in the business operations, or it can
distribute the profit among its shareholders in the form of dividends. A dividend is not regarded as
expenditure rather; it is considered a distribution of assets among shareholders. The majority of
companies keeps a component of their profits as retained earnings and distributes the rest as dividend.
FINDINGS:
❖ ADOR FONTECH is a growing firm, because the rate of return is greater than cost of equity
i.e., (17.92% > 3.8%)
❖ ADOR FONTECH is a declining firm, because cost of capital is lesser than growth rate i.e.,
(3.8% < 90%)
❖ The composed of the rate of dividends and capital gains on every share, will be equal to the
discount rate and be identical for all shares.
❖ BPCL is a growing firm, because the rate of return is greater than cost of equity i.e., (26.21%
> 4.32%)
❖ BPCL is a declining firm, because the cost of capital is lesser than growth rate i.e., (4.32% <
110%)
❖ CREATIVE CASTINGS is a growing firm, because the rate of return is greater than cost of
equity i.e., (18.29% > 3.56%)
❖ CREATIVE CASTINGS is a declining firm, because the cost of capital is lesser than growth
rate i.e., (3.56% < 70%)
Page 88
❖ FAIRDEAL FILAMENTS is a declining firm, because the rate of return is lesser than cost of
equity i.e., (34.68% < 153.68%)
❖ FAIRDEAL FILAMENTS is a growing firm, because the cost of capitalist greater than the
growth rate i.e., (153.68% > 330%)
❖ HPCL is a declining firm, because the rate of return is lesser than cost of equity i.e., (16.95%
< 46.18%)
❖ HPCL is a growing firm, because the cost of capital is greater than the growth rate i.e.,
(46.18% > 11.40%)
❖ L&T InfoTech is a growing firm, because the rate of return is greater than cost of equity i.e.,
(53.83% > 49.49%)
❖ L&T INFOTECH is a growing firm, because the cost of capital is greater than the growth rate
i.e., (49.49% > 14%)
❖ NG INDUSTRIES is a growing firm, because the rate of return is greater than cost of equity
i.e., (15.93% > 4.19%)
❖ NG INDUSTRIES is a declining firm, because the cost of capital is lesser than the growth
rate i.e., (4.19% < 100%)
❖ SONATA SOFTWARES is a declining firm, because the rate of return is lesser than cost of
equity i.e., (42.4% <120.38%)
❖ SONATA SOFTWARES is a growing firm, because the cost of capital is lesser than the
growth rate i.e., (120.38% > 255%)
Page 89
❖ Some export import and pharmaceutical sectors have impact low DPS, under this companies
fails to pay their shareholder dividends.
❖ The EPS show that high earning in L & T InfoTech and HPCL companies.
❖ It shows an increased at a decreasing rate of average dividend per share
❖ The HPCL have a high growth rate compare to other.
❖ If Ador fontech ltd.., DPS increases by one the stock price decreases by 0.381. The DPS does
not impact the stock prices as significance value is above 0.05(i. e., sig = 0.864)
❖ If BPCL DPS increases by one the stock price increases by 32.536. The DPS does not impact
the stock prices as significance value is above 0.05(i. e., sig = 0.170)
❖ If Creative Casting ltd.., DPS increases by one the stock price increases by 32.418. The DPS
does not impact the stock prices as significance value is above 0.05(i. e., sig = 0.640)
❖ If Fairdeal Filaments ltd.., DPS increases by one the stock price decreases by 0.797. The
DPS does not impact the stock prices as significance value is above 0.05(i. e., sig = 0.927)
❖ If HPCL DPS increases by one the stock price increases by 14.696. The DPS does not
impact the stock prices as significance value is above 0.05(i. e., sig = 0.107)
❖ If L & T InfoTech.., DPS increases by one the stock price increases by 78.434. The DPS
does impact the stock prices as significance value is below 0.05(i. e., sig = 0.022)
❖ If NG Industries.., DPS increases by one the stock price decreases by 0.806. The DPS does
not impact the stock prices as significance value is above 0.05(i. e., sig = 0.820
❖ If Sonata Software ltd.., DPS increases by one the stock price increases by 10.098. The DPS
does impact the stock prices as significance value is below 0.05(i. e., sig = 0.082)
Page 90
SUGGESTION
➢ The study suggest to increase the rate of return so that it can maximise the EPS.
➢ The declining firm should be transform into growing firm.
➢ The ultimate aim of the company should be increase wealth of shareholders.
➢ The company should design his stable dividend policy keeping in mind the future
prospective of investment proposals.
➢ The company should aim at to increase the growth rate in a growing prospective.
➢ Every year declaration of dividend is necessary. As shareholder are the owner of the
company and risk is directly associated with the ownership.
➢ Each company sets it unique dividend policy which depend on a few determine or factors
effecting dividend policy (internal specific factor).
➢ A high dividend payout reduces firm’s access to rational earning, the cheapest sources
of capital.
➢ Specific corrective actions are suggested to those companies when dividend payout
signals drastic fluctuation.
➢ The above mentioned 8 companies reduce their borrowing and thereby they can increase
their dividend payout.
➢ It is made to such growth making companies to provide satisfied dividend payout to
shareholders rather than only focusing on increasingly capital.
➢ The EPS signal the prospective growth of the company where as DPS ratio will have
retention ratio amount aim at exploit profitability future investment proposals with a
ultimate aim of increase in shareholder wealth.
Page 91
CONCLUSION
Today BSE India has the maximum number of stocks listed in it comparatively to any other exchange
in the world. BSE Index also known as Sensex is the most popular exchange or stock in India. BSE
Index consist of 30 stocks which involves 12 major sector .BSE India provides a great platform for
trading in equity, derivative and debt instruments. BSE India live has become the major part of Indian
Capital Market. BSE index provide BSE live prices of stocks from morning 9.00AM to 3.30 PM.
Today with the modernization of electronic media like television, computers, internet BSE India has
reached to a new high. People find trading in BSE India live is more easy and fast with the help of
these media. Through BSE Live tracking an investor can track the current price of the market and
can make strategies accordingly. Through BSE India Live a trader can make certain strategies on
how to invest, when to invest, in which scrip to invest and what is going to be the future of the market.
The Bombay Stock Exchange (BSE) regularly reviews and modifies its composition to be sure it
reflects current market conditions. The index is calculated based on a free float capitalization
method—a variation of the market capitalisation method. Instead of using a company's outstanding
shares it uses its float, or shares that are readily available for trading. The free-float method, therefore,
does not include restricted stocks, such as those held by promoters, government and strategic
investors. Initially, the index was calculated based on the ‘full market capitalization’ method.
However this was shifted to the free float method with effect from September 1, 2003. Globally, the
free float market capitalization is regarded as the industry best practice. As per free float capitalization
methodology, the level of index at any point of time reflects the free float market value of 30
component stocks relative to a base period. The market capitalization of a company is determined by
Page 92
multiplying the price of its stock by the number of shares issued by the company. This market
capitalization is multiplied by a free float factor to determine the free float market capitalization. Free
float factor is also referred as adjustment factor. Free float factor represents the percentage of shares
that are readily available for trading. It is also the fifth largest exchange in the world, with market
capitalization of $466 billion.
Investment Decision with regard to long term assets is called capital budgeting. Decision with regard
to short term or current assets is called working capital management. A firm distributes all profits or
retains them or distributes a portion and retains the balance with it. The decision depends upon the
preference of the shareholders and investment opportunities available to the firm.
Dividend Decision Dividend decision has a strong influence on the market prize of the share. So the
dividend policy is to be determined in terms of its impact on shareholder’s value. The optimum
dividend policy is one which maximizes the value of shares and wealth of the shareholders.
In the finding section, the three models via WALTER, GORDON’S GROWTH and MODIGLIANI
& MILLER MODEL for the selected companies are analysed. It indicates there is a relationship
between Walter and Gordon models, as Walter model shows nearest to the reality and Gordon shows
the approximate where in M&M model is of irrelevance.
Page 93
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WEBSITES
https://www.scribd.com/doc/37750854/Dividend-Policy-and-Its-Impact-on-Share-Price
https://www.researchgate.net/publication/277069486_Impact_of_dividend_policy_on_share
holders'_value_a_study_of_Indian_firms
http://www.ccfr.org.cn/cicf2012/papers/20120104143625.pdf
http://ssrn.com/abstract=1216171
https://www.researchgate.net/publication/230720120_Dividend_Policy_A_Review
www.investopedia.com
www.yahoofinance.com
www.moneycontrol.com
http://www.yourarticlelibrary.com/financial-management/10-most-important-determinants-
of-dividend-policy-financial-management/26237
▪ DIVIDEND POLICY AND PRACTICES:

➢ George frankfurter
➢ Bob G. Wood
➢ James Wansley
▪ DIVIDEND AND DIVIDEND POLICY

❖ H. Kent Baker (2009, dividend and dividend poicy)
Page 98
Page 99
APPENDIXES
ADOR FONTECH LTD..,
Profit & Loss account of AdorFontech ------------------- in Rs. Cr. -------------------
Mar 18 Mar 17 Mar 16 Mar 15 Mar 14
12 mths 12 mths 12 mths 12 mths 12 mths
INCOME
Revenue From Operations [Gross] 150.84 146.31 151.31 145.32 147.67
Less: Excise/Sevice Tax/Other Levies 0.00 0.00 8.14 7.89 8.23
Revenue From Operations [Net] 150.84 146.31 143.17 137.43 139.44
Total Operating Revenues 150.84 146.31 143.17 137.43 139.44
Other Income 3.90 2.59 3.90 4.13 2.67
Total Revenue 154.74 148.90 147.07 141.56 142.11
EXPENSES
Cost Of Materials Consumed 32.74 27.97 31.83 31.61 36.58
Purchase Of Stock-In Trade 49.84 58.26 50.66 42.56 44.95
Changes In Inventories Of FG,WIP And Stock-In Trade 3.64 -0.90 -0.63 0.06 -3.04
Employee Benefit Expenses 23.81 22.86 21.40 19.85 18.79
Finance Costs 0.00 0.00 0.00 0.04 0.04
Depreciation And Amortisation Expenses 3.02 3.26 3.12 3.55 2.80
Other Expenses 27.43 24.36 24.23 23.84 21.98
Total Expenses 140.48 135.81 130.61 121.51 122.10
Profit/Loss Before Exceptional, ExtraOrdinary Items And

14.26 13.09 16.46 20.05 20.01
Tax
Exceptional Items -0.84 0.00 0.00 0.00 0.00
Profit/Loss Before Tax 13.42 13.09 16.46 20.05 20.01
Tax Expenses-Continued Operations
Current Tax 4.00 4.25 5.75 7.00 7.00
Deferred Tax 0.44 0.01 0.32 -0.30 0.24
Total Tax Expenses 4.44 4.26 6.07 6.70 7.24
Profit/Loss After Tax And Before ExtraOrdinary Items 8.98 8.83 10.39 13.35 12.77
Prior Period Items 0.00 0.00 -0.02 0.00 0.00
Profit/Loss From Continuing Operations 8.98 8.83 10.37 13.35 12.77
Profit/Loss For The Period 8.98 8.83 10.37 13.35 12.77
OTHER ADDITIONAL INFORMATION

EARNINGS PER SHARE
Basic EPS (Rs.) 5.40 5.10 5.93 7.63 7.29
Diluted EPS (Rs.) 5.40 5.10 5.93 7.63 7.29
Page 100
VALUE OF IMPORTED AND INDIGENIOUS RAW MATERIALS

Imported Raw Materials 0.00 3.18 1.00 2.98 5.98
Indigenous Raw Materials 0.00 24.79 30.83 28.63 30.60
STORES, SPARES AND LOOSE TOOLS
Imported Stores And Spares 0.00 0.00 0.08 0.00 0.00
Indigenous Stores And Spares 0.00 1.24 1.21 0.88 1.22
DIVIDEND AND DIVIDEND PERCENTAGE
Equity Share Dividend 0.00 5.25 6.13 6.13 6.13
Tax On Dividend 0.00 1.07 1.25 1.25 1.04
Equity Dividend Rate (%) 150.00 150.00 175.00 175.00 175.00
Source : Dion Global Solutions Limited
Balance Sheet of AdorFontech ------------------- in Rs. Cr. -------------------
EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 3.50 3.50 3.50 3.50 3.50
Total Share Capital 3.50 3.50 3.50 3.50 3.50
Reserves and Surplus 100.55 91.12 88.60 85.61 79.86
Total Reserves and Surplus 100.55 91.12 88.60 85.61 79.86
Total Shareholders’ Funds 104.05 94.62 92.10 89.11 83.36
NON-CURRENT LIABILITIES
Long Term Borrowings 0.00 0.00 1.83 1.70 1.85
Long Term Provisions 3.73 5.28 5.61 9.87 10.02
Total Non-Current Liabilities 3.73 5.28 7.44 11.57 11.87
CURRENT LIABILITIES
Trade Payables 13.47 19.86 13.32 9.09 9.42
Other Current Liabilities 6.08 5.67 8.51 9.32 6.56
Short Term Provisions 4.64 5.36 10.86 9.09 7.93
Total Current Liabilities 24.19 30.89 32.69 27.50 23.91
Total Capital And Liabilities 131.97 130.79 132.23 128.18 119.14
ASSETS
NON-CURRENT ASSETS
Tangible Assets 18.65 20.14 21.86 20.84 20.60
Intangible Assets 0.00 0.00 0.04 0.04 0.40
Capital Work-In-Progress 0.55 0.00 0.00 0.00 0.00
Fixed Assets 19.20 20.14 21.90 20.88 21.00
Non-Current Investments 11.67 10.27 8.59 8.85 9.12
Deferred Tax Assets [Net] 2.29 2.96 2.97 3.29 2.87
Long Term Loans And Advances 0.00 0.00 1.65 1.75 2.21
Total Non-Current Assets 33.16 33.37 35.11 34.77 35.20
CURRENT ASSETS
Current Investments 9.92 4.34 1.44 1.12 0.54
Inventories 21.80 24.72 24.89 24.32 24.09
Trade Receivables 25.78 30.47 32.57 27.19 27.36
Cash And Cash Equivalents 26.56 24.88 29.62 31.27 25.20
Short Term Loans And Advances 4.87 5.16 8.60 9.51 6.75
Other Current Assets 9.88 7.85 0.00 0.00 0.00
Page 101
Total Current Assets 98.81 97.42 97.12 93.41 83.94

Total Assets 131.97 130.79 132.23 128.18 119.14
CONTINGENT LIABILITIES, COMMITMENTS
Contingent Liabilities 0.00 20.06 7.60 3.71 3.99
CIF VALUE OF IMPORTS
Raw Materials 0.00 3.46 4.22 3.12 2.80
Stores, Spares And Loose Tools 0.00 15.50 11.24 8.93 12.82
Trade/Other Goods 0.00 17.50 20.03 24.18 17.29
EXPENDITURE IN FOREIGN EXCHANGE
Expenditure In Foreign Currency 0.00 0.72 0.77 0.96 0.82
REMITTANCES IN FOREIGN CURRENCIES FOR DIVIDENDS
Dividend Remittance In Foreign Currency - - - - -
EARNINGS IN FOREIGN EXCHANGE
FOB Value Of Goods - - - - -
Other Earnings - 0.33 0.36 0.99 1.30
BONUS DETAILS
Bonus Equity Share Capital 0.08 0.08 0.08 0.08 0.08
NON-CURRENT INVESTMENTS
Non-Current Investments Quoted Market Value 4.67 6.79 7.53 6.67 9.48
Non-Current Investments Unquoted Book Value 7.00 4.76 2.76 1.76 1.76
CURRENT INVESTMENTS
Current Investments Quoted Market Value 9.92 - 1.44 1.12 0.54
Current Investments Unquoted Book Value - - - - -
BHARAT PETRPLEUM CORPRATION LTD..,
Profit & Loss account of Bharat Petroleum

------------------- in Rs. Cr. -------------------
Corporation
Mar
Mar 18 Mar 18 Mar 18 Mar 17
17
12
12 mths 12 mths 12 mths 12 mths
mths
INCOME
276,400.8 241,8
Revenue From Operations [Gross] 236,313.10 276,400.89 241,859.48
9 59.48
39,83
Less: Excise/Sevice Tax/Other Levies 40,849.13 0.00 40,849.13 39,837.25
7.25
235,551.7 202,0
Revenue From Operations [Net] 236,313.10 235,551.76 202,022.23
6 22.23
188.3
Other Operating Revenues 761.34 0.00 761.34 188.34
4
236,313.1 202,2
Total Operating Revenues 236,313.10 236,313.10 202,210.57
0 10.57
2,600
Other Income 3,010.88 3,010.88 3,010.88 2,600.68
.68
Page 102
239,323.9 204,8
Total Revenue 239,323.98 239,323.98 204,811.25
8 11.25
EXPENSES
67,71
Cost Of Materials Consumed 81,467.45 81,467.45 81,467.45 67,710.71
0.71
125,462.7 114,2
Purchase Of Stock-In Trade 125,462.73 125,462.73 114,220.09
3 20.09
-
Changes In Inventories Of FG,WIP And Stock-In
320.60 320.60 320.60 -5,577.61 5,577
Trade
.61
3,429
Employee Benefit Expenses 3,430.98 3,430.98 3,430.98 3,429.46
.46
495.8
Finance Costs 833.25 833.25 833.25 495.87
7
1,891
Depreciation And Amortisation Expenses 2,648.48 2,648.48 2,648.48 1,891.32
.32
11,59
Other Expenses 13,962.48 13,962.48 13,962.48 11,598.62
8.62
228,125.9 193,7
Total Expenses 228,125.97 228,125.97 193,768.46
7 68.46
Mar
17
12
mths
Profit/Loss Before Exceptional, ExtraOrdinary 11,04

11,198.01 11,198.01 11,198.01 11,042.79
Items And Tax 2.79
11,04
Profit/Loss Before Tax 11,198.01 11,198.01 11,198.01 11,042.79
2.79
2,210
Current Tax 2,110.00 3,278.67 2,110.00 2,210.00
.00
904.7
Deferred Tax 1,434.66 0.00 1,434.66 904.73
3
-
Tax For Earlier Years -265.99 0.00 -265.99 -111.24 111.2
4
3,003
Total Tax Expenses 3,278.67 3,278.67 3,278.67 3,003.49
.49
Profit/Loss After Tax And Before ExtraOrdinary 8,039
7,919.34 7,919.34 7,919.34 8,039.30
Items .30
8,039
Profit/Loss From Continuing Operations 7,919.34 7,919.34 7,919.34 8,039.30
.30
8,039
Profit/Loss For The Period 7,919.34 7,919.34 7,919.34 8,039.30
.30
Mar
17
12
mths
Page 103
EARNINGS PER SHARE

Basic EPS (Rs.) 40.26 40.26 40.26 40.87 40.87
Diluted EPS (Rs.) 40.26 40.26 40.26 40.87 40.87
VALUE OF IMPORTED AND INDIGENIOUS RAW
MATERIALS
5,640
Equity Share Dividend 3,181.57 0.00 3,181.57 5,640.06
.06
998.0
Tax On Dividend 420.49 0.00 420.49 998.04
4
325.0
Equity Dividend Rate (%) 210.00 0.00 210.00 325.00
0
Balance Sheet of Bharat Petroleum Corporation ------------------- in Rs. Cr. -------------------

SHAREHOLDER'S FUNDS
Equity Share Capital 1,966.88 1,311.25 723.08 723.08 723.08
Total Share Capital 1,966.88 1,311.25 723.08 723.08 723.08
Reserves and Surplus 32,185.12 28,357.13 26,435.61 21,744.40 18,735.68
Total Reserves and Surplus 32,185.12 28,357.13 26,435.61 21,744.40 18,735.68
Total Shareholders Funds 34,152.00 29,668.38 27,158.69 22,467.48 19,458.76
Long Term Borrowings 14,758.22 13,776.44 13,685.69 11,737.01 11,808.36
Deferred Tax Liabilities [Net] 4,953.26 3,501.71 2,228.90 1,708.26 1,360.90
Other Long Term Liabilities 200.76 200.69 60.73 70.03 60.74
Long Term Provisions 1,366.19 1,353.15 1,156.84 1,108.60 1,157.31
Total Non-Current Liabilities 21,278.43 18,831.99 17,132.16 14,623.90 14,387.31
CURRENT LIABILITIES
Short Term Borrowings 8,093.01 7,227.36 23.96 40.27 8,183.70
Trade Payables 13,063.84 11,359.78 8,430.79 12,216.41 12,034.96
Other Current Liabilities 22,120.10 23,086.55 20,217.97 16,805.21 15,694.09
Short Term Provisions 1,515.16 1,815.57 3,025.84 3,575.61 2,668.59
Total Current Liabilities 44,792.11 43,489.26 31,698.56 32,637.50 38,581.34
100,222.5
Total Capital And Liabilities 91,989.63 75,989.41 69,728.88 72,427.41
4
ASSETS
Page 104
NON-CURRENT ASSETS
Tangible Assets 42,775.79 31,278.66 23,377.80 20,226.06 18,968.83
Capital Work-In-Progress 4,043.71 11,216.73 12,402.75 7,640.61 3,040.03
Intangible Assets Under Development 363.83 405.79 215.18 25.07 25.07
Other Assets 0.26 0.40 0.00 0.00 0.00
Fixed Assets 47,385.43 43,059.83 36,085.72 27,980.74 22,104.61
Non-Current Investments 10,825.40 9,241.11 7,875.58 7,302.05 7,238.10
Long Term Loans And Advances 3,091.38 3,783.65 3,864.84 4,077.17 3,266.66
Other Non-Current Assets 2,021.92 1,646.92 87.70 83.46 166.14
Total Non-Current Assets 63,324.13 57,731.51 47,913.84 39,443.42 32,775.51
CURRENT ASSETS
Current Investments 4,995.18 5,360.34 5,098.11 5,089.09 4,608.79
Inventories 20,873.75 19,798.01 13,696.28 14,457.85 19,071.13
Trade Receivables 5,152.60 4,758.18 2,165.02 2,607.67 4,080.16
Cash And Cash Equivalents 88.07 64.69 2,067.35 1,360.20 203.76
Short Term Loans And Advances 70.95 70.65 1,030.81 748.39 941.35
OtherCurrentAssets 5,717.86 4,206.25 4,018.00 6,022.26 10,746.71
Total Current Assets 36,898.41 34,258.12 28,075.57 30,285.46 39,651.90
100,222.5
Total Assets 91,989.63 75,989.41 69,728.88 72,427.41
4
Contingent Liabilities 16,618.13 13,775.02 15,456.70 18,904.19 17,397.99
Raw Materials 0.00 0.00 43,690.17 72,139.49 85,221.96
Capital Goods 0.00 0.00 1,238.41 432.75 268.84
Expenditure In Foreign Currency 77,477.92 62,084.76 5,672.40 8,087.05 5,856.01
FOB Value Of Goods 1,925.17 1,695.30 7,089.97 12,364.27 19,122.06
Other Earnings 8,445.64 8,456.82 47.98 - -
BONUS DETAILS
Bonus Equity Share Capital 1,882.32 1,294.16 638.54 638.54 638.54
Non-Current Investments Quoted Market Value 575.94 594.85 4,563.80 3,535.38 2,866.35
Non-Current Investments Unquoted Book Value 105.27 97.81 7,183.57 6,610.04 6,546.09
CURRENT INVESTMENTS
Current Investments Quoted Market Value 4,992.88 5,360.34 5,091.67 5,104.33 4,608.79
Current Investments Unquoted Book Value 2.30 - 20.00 - -
Page 105
CREATIVE CASTING
Profit & Loss account of Creative Castings ------------------- in Rs. Cr. -------------------
Mar
18
12
mths
INCOME
Revenue From Operations [Gross] 33.75 33.44 27.04 26.28 22.10
Revenue From Operations [Net] 33.44 33.44 25.73 24.91 20.91
Other Operating Revenues 0.00 0.00 0.00 0.31 0.33
Total Operating Revenues 33.44 33.44 25.73 25.22 21.23
Other Income 0.98 0.98 0.68 0.62 0.14
Total Revenue 34.42 34.42 26.41 25.84 21.37
EXPENSES
Operating And Direct Expenses 10.46 0.00 8.75 2.14 1.99
-0.39 -0.39 0.23 0.25 0.39
Trade
Finance Costs 0.01 0.01 0.01 0.00 0.03
Depreciation And Amortization Expenses 0.61 0.61 0.55 0.56 0.52
Other Expenses 1.69 12.15 1.61 7.11 5.87
Total Expenses 30.33 30.33 23.10 22.52 19.30
Mar
18
12
mths
Profit/Loss Before Exceptional, ExtraOrdinary

4.09 4.09 3.30 3.32 2.07
Items And Tax
Current Tax 0.99 1.00 0.70 0.65 0.40
Deferred Tax 0.01 0.00 -0.05 0.11 0.09
Profit/Loss After Tax And Before ExtraOrdinary
3.08 3.08 2.65 2.56 1.58
Items
Mar
18
Page 106
12
mths

EARNINGS PER SHARE
Basic EPS (Rs.) 23.73 24.56 20.41 19.68 12.12
Diluted EPS (Rs.) 23.73 24.56 20.41 19.68 12.12
MATERIALS
Tax On Dividend 0.00 0.00 0.26 0.08 0.03
100.0
0
Balance Sheet of Creative Castings ------------------- in Rs. Cr. -------------------

Mar
18
12
mths

SHAREHOLDER'S FUNDS
22.0
Reserves and Surplus 18.84 17.81 15.72 14.32
3
22.0
Total Reserves and Surplus 18.84 17.81 15.72 14.32
3
23.3
Total Shareholders’ Funds 20.14 19.11 17.02 15.62
3
Long Term Borrowings 0.00 0.00 0.00 0.00 1.76
Deferred Tax Liabilities [Net] 0.73 0.68 0.76 0.64 0.56
Total Non-Current Liabilities 0.79 0.81 0.81 0.71 2.39
CURRENT LIABILITIES
Page 107
Short Term Borrowings 0.00 0.00 0.17 0.00 0.00

Trade Payables 3.82 2.45 1.99 2.30 1.36
28.7
Total Capital And Liabilities 24.00 23.14 20.77 21.27
0
ASSETS
NON-CURRENT ASSETS
Tangible Assets 7.59 7.53 7.11 7.24 7.41
Fixed Assets 7.64 7.57 7.11 7.24 7.41
Other Non-Current Assets 0.39 0.43 0.00 0.00 0.00
Total Non-Current Assets 9.08 8.16 7.70 8.07 8.20
CURRENT ASSETS
Current Investments 4.44 5.12 3.95 2.05 2.05
Inventories 3.22 2.80 2.91 2.95 3.44
OtherCurrentAssets 2.59 2.18 0.25 0.02 0.02
19.6
Total Current Assets 15.84 15.43 12.70 13.07
2
28.7
Total Assets 24.00 23.14 20.77 21.27
0
Raw Materials 0.00 0.00 0.00 0.04 0.00
Expenditure In Foreign Currency 0.09 0.09 0.01 0.03 0.01
REMITTANCES IN FOREIGN CURRENCIES FOR
DIVIDENDS
16.1
FOB Value Of Goods 13.21 12.97 10.26 13.46
7
Other Earnings - - - - -
BONUS DETAILS
Bonus Equity Share Capital - - - - -
Page 108
Non-Current Investments Quoted Market Value - - 0.09 0.09 0.09

Non-Current Investments Unquoted Book Value 0.99 - - - -
CURRENT INVESTMENTS
Current Investments Quoted Market Value - - - - -
Current Investments Unquoted Book Value 4.44 5.12 - - -
FAIRDEAL FILAMENTS LTD..,
Profit & Loss account of Fairdeal Filaments ------------------- in Rs. Cr. -------------------
Mar
18
12
mths
INCOME
218.4
Revenue From Operations [Gross] 218.66 208.95 198.05 191.99
1
216.8
Revenue From Operations [Net] 218.66 201.76 190.25 184.69
1
218.6
Total Operating Revenues 218.66 204.46 193.08 187.04
6
Other Income 0.06 0.06 0.05 0.05 0.05
218.7
Total Revenue 218.73 204.51 193.12 187.09
3
EXPENSES
156.6
Purchase Of Stock-In Trade 156.67 141.19 130.59 106.14
7
Operating And Direct Expenses 9.41 0.00 8.88 9.54 9.50
-1.46 -1.46 0.42 2.13 -0.30
Trade
Finance Costs 4.16 4.16 4.07 4.15 4.47
Other Expenses 2.66 12.07 2.76 2.56 3.16
216.0
Total Expenses 216.07 202.63 190.71 183.97
7
Mar
18
12
mths
Page 109

2.66 2.66 1.88 2.41 3.12
Items And Tax
Current Tax 0.90 0.65 0.40 0.49 1.28
Deferred Tax -0.26 0.00 -0.04 0.14 -0.30
Tax For Earlier Years 0.00 0.00 -0.23 0.08 0.02
2.01 2.01 1.76 1.71 2.12
Items
Mar
18
12
mths

EARNINGS PER SHARE
Basic EPS (Rs.) 3.33 3.33 2.91 2.82 5.78
Diluted EPS (Rs.) 3.33 3.33 2.91 2.82 5.78
MATERIALS
Tax On Dividend 0.00 0.00 0.15 0.15 0.05
Page 110
Hindustan Petroleum Corporation
Profit & Loss account of Hindustan Petroleum

------------------- in Rs. Cr. -------------------
Corporation
12
mths
INCOME
243,226.6 213,48
6 8.95
26,779
Less: Excise/Sevice Tax/Other Levies 24,752.52 0.00 24,752.52 26,779.28
.28
218,474.1 186,70
4 9.67
219,332.6 187,09
0 0.54
1,448.
Other Income 1,849.46 1,849.46 1,849.46 1,448.08
08
221,182.0 188,53
Total Revenue 221,182.06 221,182.06 188,538.62
6 8.62
EXPENSES
45,137
Cost Of Materials Consumed 51,186.30 51,186.30 51,186.30 45,137.66
.66
142,455.7 122,73
Purchase Of Stock-In Trade 142,455.74 142,455.74 122,731.74
4 1.74
5,331.
Operating And Direct Expenses 5,871.09 0.00 5,871.09 5,331.99
99
-
804.54 804.54 804.54 -4,454.06 4,454.
Trade
06
2,946.
Employee Benefit Expenses 2,858.52 2,858.52 2,858.52 2,946.08
08
Finance Costs 566.71 566.71 566.71 535.65 535.65
2,535.
Depreciation And Amortisation Expenses 2,752.75 2,752.75 2,752.75 2,535.28
28
4,753.
Other Expenses 5,484.48 11,355.57 5,484.48 4,753.44
44
211,980.1 179,51
Total Expenses 211,980.13 211,980.13 179,517.78
3 7.78
12
mths
Profit/Loss Before Exceptional, ExtraOrdinary 9,020.

9,201.93 9,201.93 9,201.93 9,020.84
Items And Tax 84
9,020.
Profit/Loss Before Tax 9,201.93 9,201.93 9,201.93 9,020.84
84
Page 111

2,236.
Current Tax 2,570.98 2,844.86 2,570.98 2,236.24
24
Deferred Tax 419.56 0.00 419.56 628.28 628.28
Tax For Earlier Years -145.68 0.00 -145.68 -52.48 -52.48
2,812.
Total Tax Expenses 2,844.86 2,844.86 2,844.86 2,812.04
04
Profit/Loss After Tax And Before Extra-Ordinary 6,208.
6,357.07 6,357.07 6,357.07 6,208.80
Items 80
6,208.
Profit/Loss From Continuing Operations 6,357.07 6,357.07 6,357.07 6,208.80
80
6,208.
Profit/Loss For The Period 6,357.07 6,357.07 6,357.07 6,208.80
80
12
mths

EARNINGS PER SHARE
Basic EPS (Rs.) 41.72 41.72 41.72 40.74 40.74
Diluted EPS (Rs.) 41.72 41.72 41.72 40.74 40.74
MATERIALS
3,477.
Equity Share Dividend 2,321.29 0.00 2,321.29 3,477.69
69
Tax On Dividend 472.56 0.00 472.56 707.99 707.99
Balance Sheet of Hindustan Petroleum

------------------- in Rs. Cr. -------------------
Corporation

SHAREHOLDER'S FUNDS
Equity Share Capital 1,524.21 1,016.27 339.01 339.01 339.01
Total Share Capital 1,524.21 1,016.27 339.01 339.01 339.01
22,424.0
Reserves and Surplus 19,331.14 18,017.09 15,683.08 14,673.15
1
Page 112
22,424.0
Total Reserves and Surplus 19,331.14 18,017.09 15,683.08 14,673.15
1
23,948.2
Total Shareholders’ Funds 20,347.41 18,356.10 16,022.09 15,012.16
2
Long Term Borrowings 8,830.78 6,278.15 10,633.48 14,855.83 15,554.88
Deferred Tax Liabilities [Net] 6,569.19 5,895.59 4,810.46 4,103.60 3,908.43
Other Long Term Liabilities 4.46 8.11 9,450.58 8,292.35 7,207.70
15,481.6
Total Non-Current Liabilities 12,364.17 25,325.79 27,833.25 27,258.67
5
CURRENT LIABILITIES
10,762.1
Short Term Borrowings 10,892.41 3,888.54 2,199.81 16,375.17
8
15,703.8
Trade Payables 12,664.56 6,587.07 8,935.65 10,651.39
7
18,403.0
Other Current Liabilities 19,792.80 14,587.91 10,162.32 6,538.72
5
Short Term Provisions 2,508.25 2,408.50 1,725.52 2,397.52 1,741.98
47,377.3
Total Current Liabilities 45,758.27 26,789.04 23,695.30 35,307.26
5
86,807.2
Total Capital And Liabilities 78,469.85 70,470.93 67,550.64 77,578.09
2
ASSETS
NON-CURRENT ASSETS
37,519.0
Tangible Assets 35,711.00 33,211.12 28,852.05 25,797.19
3
Capital Work-In-Progress 3,985.39 1,810.48 1,876.94 3,474.42 4,585.56
41,957.1
Fixed Assets 37,942.36 35,322.71 32,537.23 30,497.80
0
Non-Current Investments 6,105.72 5,809.86 6,000.06 5,867.52 5,735.83
Long Term Loans And Advances 461.61 456.43 1,573.40 1,429.86 1,461.42
49,933.5
Total Non-Current Assets 45,547.53 42,982.20 39,951.16 37,841.31
1
CURRENT ASSETS
Current Investments 4,999.38 5,108.74 4,994.62 5,373.96 5,124.04
18,420.2
Inventories 18,576.28 12,709.12 12,972.26 18,775.41
2
Trade Receivables 5,572.91 4,064.21 4,192.66 3,603.05 5,465.95
Cash And Cash Equivalents 1,194.11 33.67 19.69 17.07 34.71
Short Term Loans And Advances 89.34 163.21 5,295.52 5,306.52 10,007.90
OtherCurrentAssets 6,597.75 4,976.21 277.12 326.62 328.77
36,873.7
Total Current Assets 32,922.32 27,488.73 27,599.48 39,736.78
1
86,807.2
Total Assets 78,469.85 70,470.93 67,550.64 77,578.09
2
Page 113

23,676.4
Contingent Liabilities 7,687.28 7,340.54 6,572.11 8,687.79
7
Raw Materials 0.00 0.00 28,326.26 46,138.58 57,859.94
Capital Goods 0.00 0.00 82.37 32.60 68.91
38,223.0
Expenditure In Foreign Currency 32,458.36 29,216.25 43,451.95 60,560.98
4
DIVIDENDS
FOB Value Of Goods - - 1,810.68 5,313.98 4,231.03
Other Earnings 2,512.74 2,140.26 - - -
BONUS DETAILS
Bonus Equity Share Capital 1,449.63 941.68 264.43 264.43 264.43
Non-Current Investments Quoted Market Value 3,829.83 3,764.02 2,411.69 2,602.18 2,064.87
Non-Current Investments Unquoted Book Value 5,348.44 5,049.80 5,264.71 4,850.07 4,718.38
CURRENT INVESTMENTS
Current Investments Quoted Market Value 4,999.38 5,100.96 4,985.67 5,373.96 5,124.03
Current Investments Unquoted Book Value - 7.78 8.95 5.01 -
L & T INFOTECH LTD..,
Profit & Loss account of Larsen & Toubro ------------------- in Rs. Cr. -------------------
INCOME
73,495.4 59,517.1
9 3
73,346.3 58,881.7
9 4
Other Operating Revenues 1,116.16 1,116.16 905.35 905.35 897.87
74,462.5 59,779.6
5 1
Page 114
Other Income 1,884.82 1,884.82 1,914.96 1,914.96 2,405.97

76,347.3 62,185.5
Total Revenue 76,347.37 67,638.82 67,638.82
7 8
EXPENSES
Cost Of Materials Consumed 8,092.54 8,092.54 7,370.57 7,370.57 7,396.35
Purchase Of Stock-In Trade 1,296.62 1,296.62 1,390.84 1,390.84 1,129.18
50,062.3 37,988.5
Operating And Direct Expenses 50,062.36 42,532.98 42,532.98
6 8
-962.36 -962.36 131.59 131.59 114.98
Trade
Employee Benefit Expenses 5,713.59 5,713.59 5,147.38 5,147.38 4,480.20
Finance Costs 1,432.23 1,432.23 1,316.91 1,316.91 1,449.04
Depreciation And Amortisation Expenses 1,049.46 1,049.46 1,215.19 1,215.19 998.88
Other Expenses 2,836.27 2,836.27 2,671.00 2,671.00 2,505.07
Less: Amounts Transfer To Capital Accounts 5.19 5.19 1.51 1.51 5.53
69,515.5 56,056.7
Total Expenses 69,515.52 61,774.95 61,774.95
2 5

6,831.85 6,831.85 5,863.87 5,863.87 6,128.83
Items And Tax
Exceptional Items 430.53 430.53 893.97 893.97 560.28
Profit/Loss Before Tax 7,262.38 7,262.38 6,757.84 6,757.84 6,689.11
Current Tax 1,974.07 1,974.07 1,675.20 1,675.20 1,551.19
Deferred Tax -98.99 -98.99 -371.10 -371.10 -173.54
Total Tax Expenses 1,875.08 1,875.08 1,304.10 1,304.10 1,377.65
5,387.30 5,387.30 5,453.74 5,453.74 5,311.46
Items
Profit/Loss From Continuing Operations 5,387.30 5,387.30 5,453.74 5,453.74 5,311.46
Profit/Loss For The Period 5,387.30 5,387.30 5,453.74 5,453.74 5,311.46

EARNINGS PER SHARE
Basic EPS (Rs.) 38.46 38.46 39.00 39.00 57.07
Diluted EPS (Rs.) 38.37 38.37 38.86 38.86 56.80
MATERIALS
Imported Raw Materials 0.00 0.00 0.00 0.00 1,422.32
Indigenous Raw Materials 0.00 0.00 0.00 0.00 5,974.03
Page 115

Equity Share Dividend 0.00 0.00 0.00 0.00 1,699.95
Tax On Dividend 0.00 0.00 0.00 0.00 140.88
Balance Sheet of Larsen & Toubro ------------------- in Rs. Cr. -------------------
12
mths

SHAREHOLDER'S FUNDS
Revaluation Reserves 0.00 0.00 15.18 15.57 19.25
33,457.
Reserves and Surplus 48,737.22 45,672.95 40,516.85 36,883.10
20
33,476.
Total Reserves and Surplus 48,737.22 45,672.95 40,532.03 36,898.67
45
33,661.
Total Shareholders Funds 49,017.49 45,859.54 40,718.33 37,084.58
83
Equity Share Application Money 3.56 0.00 0.00 0.00 0.00
Hybrid/Debt/Other Securities 153.20 153.20 0.00 0.00 0.00
5,478.1
Long Term Borrowings 5,495.16 7,134.28 8,339.27 8,508.60
4
Deferred Tax Liabilities [Net] 0.00 0.00 203.36 362.99 409.92
6,281.2
Total Non-Current Liabilities 6,077.94 7,697.39 9,065.40 9,341.66
4
CURRENT LIABILITIES
5,980.7
Short Term Borrowings 5,065.84 3,424.09 3,881.87 3,791.08
8
16,345.
Trade Payables 31,097.11 24,338.32 22,118.80 18,844.77
45
13,921.
Other Current Liabilities 23,092.66 19,672.91 18,591.69 15,340.79
76
2,113.5
Short Term Provisions 1,102.22 1,092.99 2,693.62 2,500.88
2
Page 116
38,361.
Total Current Liabilities 60,357.83 48,528.31 47,285.98 40,477.52
51
115,610.0 78,304.
Total Capital And Liabilities 102,238.44 97,069.71 86,903.76
2 58
ASSETS
NON-CURRENT ASSETS
7,560.8
Tangible Assets 6,272.46 6,523.22 7,120.59 7,402.20
1
Capital Work-In-Progress 452.10 302.53 250.69 304.54 411.86
Intangible Assets Under Development 200.77 201.25 158.91 189.50 150.55
Other Assets 474.98 396.70 0.00 0.00 0.00
8,237.2
Fixed Assets 7,593.40 7,548.37 7,668.59 7,981.40
1
15,168.
Non-Current Investments 22,994.26 19,776.81 19,897.94 17,672.82
41
3,721.5
Long Term Loans And Advances 1,684.13 1,777.54 3,031.73 2,720.83
7
27,189.
Total Non-Current Assets 36,039.95 32,138.97 30,786.15 28,502.91
97
CURRENT ASSETS
4,046.2
Current Investments 4,344.98 6,982.08 4,670.98 5,380.08
3
1,982.5
Inventories 2,500.04 1,762.86 1,888.00 2,207.79
3
21,538.
Trade Receivables 24,454.24 19,921.95 26,309.19 23,051.11
76
1,782.8
Cash And Cash Equivalents 4,317.87 3,535.72 1,680.91 1,515.80
6
6,345.6
Short Term Loans And Advances 992.34 1,905.80 10,205.15 7,812.35
5
15,418.
OtherCurrentAssets 42,960.60 35,991.06 21,529.33 18,433.72
58
51,114.
Total Current Assets 79,570.07 70,099.47 66,283.56 58,400.85
61
115,610.0 78,304.
Total Assets 102,238.44 97,069.71 86,903.76
2 58
15,044.
Contingent Liabilities 46,004.04 42,258.67 19,427.25 22,896.78
54
1,954.3
Raw Materials 0.00 0.00 1,736.06 1,412.86
6
1,701.9
Stores, Spares And Loose Tools 0.00 0.00 1,178.96 1,074.52
3
Capital Goods 0.00 0.00 120.88 219.69 205.37
Page 117
6,003.3
Expenditure In Foreign Currency 17,699.28 0.00 8,212.48 6,936.27
4
Dividend Remittance In Foreign Currency - - 35.72 29.97 36.27
1,006.7
FOB Value Of Goods - - 878.06 687.45
2
8,403.0
Other Earnings 16,350.80 - 10,210.97 8,753.27
3
BONUS DETAILS
Bonus Equity Share Capital 244.94 151.59 151.59 151.59 151.59
9,740.3
Non-Current Investments Quoted Market Value 50,537.78 31,883.81 7,468.59 8,060.92
8
13,476.
Non-Current Investments Unquoted Book Value 18,397.23 17,246.33 18,429.76 16,058.34
54
CURRENT INVESTMENTS
1,798.2
Current Investments Quoted Market Value 3,274.18 1,951.05 2,092.35 2,342.93
2
2,291.8
Current Investments Unquoted Book Value 1,070.80 5,031.03 2,661.88 3,124.14
4
NG INDUSTRIES LTD..,
Profit & Loss account of NG Industries ------------------- in Rs. Cr. -------------------

Mar
18
12
mths
INCOME
17.3
Revenue From Operations [Gross] 17.36 17.28 16.93 14.86
6
17.3
Revenue From Operations [Net] 17.36 17.28 16.93 14.86
6
17.3
Total Operating Revenues 17.36 17.28 16.93 14.86
6
Other Income -0.23 -0.23 -0.02 -0.07 0.53
17.1
Total Revenue 17.13 17.26 16.86 15.39
3
EXPENSES
Purchase Of Stock-In Trade 2.06 0.00 0.00 0.00 0.00
Page 118

Finance Costs 0.01 0.01 0.01 0.01 0.04
Other Expenses 8.25 8.25 8.18 7.83 7.19
14.9
Total Expenses 14.99 15.04 14.45 13.44
9
Mar
18
12
mths

2.14 2.14 2.22 2.42 1.96
Items And Tax
Current Tax 0.73 0.67 0.74 0.82 0.65
Deferred Tax 0.00 0.07 0.06 0.05 -0.13
Tax For Earlier Years 0.00 -0.01 0.00 0.02 0.01
1.41 1.41 1.42 1.53 1.43
Items
Mar
18
12
mths

EARNINGS PER SHARE
Basic EPS (Rs.) 4.20 4.20 4.24 4.57 4.27
Diluted EPS (Rs.) 4.20 4.20 4.24 4.57 4.27
MATERIALS
Tax On Dividend 0.00 0.24 0.24 0.24 0.23
35.0
0
Page 119
Balance Sheet of NG Industries ------------------- in Rs. Cr. -------------------

Mar
18
12 12
12 mths 12 mths 12 mths
mths mths

SHAREHOLDER'S FUNDS
Reserves and Surplus 8.50 8.97 11.11 10.99 10.97
Total Reserves and Surplus 8.50 8.97 11.11 10.99 10.97
11.8
Total Shareholders Funds 12.32 14.46 14.34 14.32
5
CURRENT LIABILITIES
Short Term Borrowings 1.48 1.91 1.17 1.07 1.85
13.6
Total Capital And Liabilities 14.38 17.21 16.97 17.80
0
ASSETS
NON-CURRENT ASSETS
Tangible Assets 4.96 4.90 4.87 5.09 6.00
Fixed Assets 4.96 4.90 4.87 5.09 6.00
Other Non-Current Assets 0.97 0.95 0.00 0.00 0.00
11.8
Total Non-Current Assets 11.69 15.06 14.87 14.79
5
CURRENT ASSETS
Inventories 0.75 0.84 0.76 0.60 0.66
Total Current Assets 1.75 2.70 2.15 2.09 3.01
13.6
Total Assets 14.38 17.21 16.97 17.80
0
Page 120

DIVIDENDS
FOB Value Of Goods - - - - -
Other Earnings - - - - -
BONUS DETAILS
Bonus Equity Share Capital - - - - -
Non-Current Investments Quoted Market Value 4.24 4.30 5.19 8.44 5.78
Non-Current Investments Unquoted Book Value - - - - -
CURRENT INVESTMENTS
Current Investments Quoted Market Value - - - - -
Current Investments Unquoted Book Value - - - - -
Page 121

Impact of Dividend On Share Price: Assistant Professor Head of The Department

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IMPACT OF DIVIDEND ON SHARE PRICE

IMPACT OF DIVIDEND ON SHARE PRICE

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILMENT OF

Under the guidance of

Department of management science, Yuvaraja’s college (autonomous)

This is to certify that MITHUN T S studying in IV semester MBA at

GUIDE HOD PRINCIPAL

Dr. ABDUL HALEEM QURAISHI DR.C.SUMUNGALA Dr.M.RUDRAIAH

This is to certify that Mr.MITHUN T S studying IV semester MBA at

Date: Reg No: YMN17126

I MITHUN T S, Hereby declare that this project work entitled “IMPACT

Date: Reg No: YMN17126

Date: Reg No: YMN17126

3 CONCEPTUAL FRAMEWORK 18-44

4 COMPANY PROFILE 45-55

5 DATA ANALYSIS AND INTERPRETATIONS 56-72

6 FINDINGS, SUGGESTIONS AND CONCLUSION 73-93

Stockholders and investors:

NEED FOR STUDY:

iv) To analyze the impact of models on firms dividend policy.

Data: The present treatise is based on primary and Secondary Data.

AL-Malkawi, (2007) The examined determinants of corporate dividend policy in Jordanian

According to the Institute of Chartered Accountants of India, dividend is "a distribution to

i) Provision in Articles of Association.

ii) Capital gain must be realized.

DEFINITION: DIVIDEND POLICY

Financial Management and Policy:

• Bonus Shares referred to as stock dividend in USA

• Property dividend interim dividend, annual dividend.

• Special- dividend, extra dividend etc.

• Regular Cash dividend

 Bonus Shares: (OR Stock -dividend in USA)

The following are advantages of the bonus shares to shareholders:

quarterly, monthly, semiannually or annually.

THE DIVIDEND DECISION

Dividend policies must always consider two basic objectives:

• Maximizing owners' wealth

• Providing sufficient financing

Factors FCFE> Dividends FCFE<Dividends

ROE>Cost of Equity Good Projects Good Projects

Cash flow surplus Decrease Dividends

No Change Invest in Projects

ROE< Cost of Equity Poor Projects Poor Projects

Cash flow surplus Cash flow Deficit

Increase Dividends Decrease Dividends

Reduce Investment Reduce Investment

Figure 3.1: Dividend Decision Matrix

DIVIDEND PAYMENT PROCEDURES

Declaration date Record date Payment Cum-dividend Ex- dividend

Payment date: The dividend checks are mailed to shareholders of record.

DIVIDEND POLICY THEORIES

1. The Residual Theory of Dividend Policy

2. Dividend Irrelevancy Theory, (Miller & Modigliani, 1961)

the firm or its cost of capital.

Dividend Irrelevance Arguments:

The Clientele Effect

Figure 3.3: The Clientele Effect

However, this theory is based on the following assumptions: