Dividend Policy

Corporate Finance - Dividend Payment Procedures

Dividend payouts follow a set procedure as follows:

Declaration date
Ex-dividend date
Holder-of-record date
Payment date

1.Declaration DateDeclaration dateis the announcement that the company's board of directors approved the payment of the dividend.

2.Ex-Dividend DateThe ex-dividend date is the date on which investors are cut off from receiving a dividend. If for example, an investor purchases a stock on the ex-dividend date, that investor will not receive the dividend. This date is two business days before the holder-of-record date. 

The ex-dividend date is important as, from this date and forward, new stockholders will not receive the dividend. As a result, the stock price of the company will be reflective of this. For example, on and after the ex-dividend date, a stock most likely trades at lower price, as the stock price is adjusted for the dividend that the new holder will not receive.

3. Holder-of-Record DateThe holder-of-record (owner-of-record) date is the date on which the stockholders who are to receive the dividend are recognized.

Look Out!
Remember that stock transactions typically settle in three business days.



Understanding the dates of the dividend payout process can be tricky. We clear up the confusion in the following article:

- Declaration, Ex-Dividend and Record Date Defined

4.Payment dateLast is the payment date, the date on which the actual dividend is paid out to the stockholders of record.

Example: dividend paymentSuppose Newco would like to pay a dividend to its shareholders. The company would proceed as follows:

1.On Jan 28, the company declares it will pay its regular dividend of $0.30 per share to holders of record on Feb 27, with payment on Mar 17.
2.The ex-dividend date for the dividend is Feb 23 (usually four days before of the holder-of-record date). On Feb 23 new buyers do not have a right to the dividend.
3.At the close of business on Feb 27, all holders of Newco's stock are recorded, and those holders will receive the dividend.
4.On Mar 17, the payment date, Newco mails the dividend checks to the holders of record.

Read more: http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/dividend-payment-procedures.asp#ixzz1yhItvcPN

Corporate Finance - Dividend Growth Rate and the Effect of Changing Dividend Policy

Signaling An Earning's Forecast Through Changes in Dividend PolicyMuch like a company can signal the state of its operations through its use of capital-financing projects, management can also signal its company's earnings forecast through changes in its dividend policy. 

Dividends are paid out when a company satisfies its internal needs for cash. If a company cuts its dividends, stockholders may become worried that the company is not generating enough earnings to satisfy its internal needs for cash as well as pay out its current dividend. A stock may decline in this instance. 

Suppose for example Newco decides to cuts its dividend to $0.25 per share from its initial value of $0.50 per share. How would this be perceived by investors?

Most likely the cut in dividend by Newco would be perceived negatively by investors. Investors would assume that the company is beginning to go through some tough times and the company is trying to preserve cash. This would indicate that the business may be slowing or earnings are not growing at the rate it once had. 

To learn more about dividends, please read: The Importance of Dividends

The Clientele Effect.A company's change in dividend policy may impact in the company's stock price given changes in the "clientele" interested in owning the company's stock. Depending on their personal tax situation, some stockholders may prefer capital gains over dividends and vice versa as capital gains are taxed at a lower rate than dividends. The clientele effect is simply different stockholders' preference on receiving dividends compared to capital gains.

For example, a stockholder in a high tax bracket may favor stocks with low dividend payouts compared to a stockholder in a low tax-bracket who may favor stocks with higher dividend payouts.

Read more: http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/dividend-growth-changing-dividend-policy-effects.asp#ixzz1yf633Zet

Dividend Policy - Don't Piss Off your Shareholders

View more PowerPoint from Amit Dodwani

Profit Distribution Policy and Dividend Policy: IF ONLY more companies can emulate this example.

It is refreshing to note that TDM states its profit distribution policy and dividend policy so very clearly in the front pages of its annual report.  It would be a great example to emulate by other listed companies too.

From Page 5 of TDM 2010 Annual Report:

Profit Distribution Policy

TDM Group’s annual consolidated distributable profits shall be appropriated as follows:
(i) one third for dividends to shareholders;
(ii) one third for capital expenditure of the Group; and
(iii) one third for the reserves of the Group.

This policy was approved by the Board of Directors of TDM Berhad on 13 August 2009

Dividend Policy

TDM Berhad will endeavour to payout dividends of at least 30% of its consolidated annual net profi t after taxation and minority interest, subject to availability of distributable reserves.

Dividends will only be paid if approved by the Board of Directors and the shareholders of the Company.

The actual amount and timing of dividend payments will be dependent upon TDM Berhad’s cash flow position, returns from operations, business prospects, current and expected obligations, funding needs for future growth, maintenance of an efficient capital structure and such other factors which the Board of Directors of TDM Berhad may deem relevant.

The Company will take every effort to grow its businesses and it should be reflected in growth in the dividend rate.

The objective of this dividend policy is to provide sustainable dividends to shareholders consistent with the Company’s earnings growth.

This policy was approved by the Board of Directors of TDM Berhad on 12 April 2009


2010 Annual Report of TDM
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/3d7153ea4b2a666f4825787f002ca198/$FILE/TDM-AnnualReport2010%20(2MB).pdf

Stable dividend policy is followed by prudent management.

Stable dividend policy is followed by prudent management, as it enhances prestige and credit standing of the company and the shareholders also prefer such a policy, as it leads to stability in market prices of shares. Stable dividend means that a certain minimum amount of dividend is paid regularly. It may also mean that dividend is paid regularly by the company, but the amount or rate of dividend is not fixed. However, the former meaning is more acceptable. The stable dividend may take the following forms:

(1) Fixed Amount of dividend per share.
(2) Fixed Share of Profit (Constant Pay out Ratio).
(3) Fixed Total Amount of dividend.
(4) Fixed Percentage of market price of shares.



Constant Pay-out Ratio




http://www.listedall.com/2010/02/stable-dividend-policy.html