Analysis of Dividend Pay Out Trend

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  • Topic: Dr. Reddy's Laboratories, Null hypothesis, Ranbaxy Laboratories
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The Impact of Dividend Policy on Shareholders’ Wealth of Selected Major Pharmaceutical Units in India

CHAPTER IV ANALYSIS OF DIVIDEND PAY OUT TREND 4.1 Introduction Dividend policy has been a concern of significance in financial literature since inception of Joint Stock Companies. Dividends are commonly defined as the distribution of earnings (past or present) in real assets among the shareholders of the firm in proportion to their ownership.xxxix Dividend policy connotes to the payout policy, which managers practise in deciding the volume and pattern of cash sharing to shareholders over time. Managements’ principal aim is shareholders’ wealth maximization, which renders into maximizing the worth of the company as measured by the price of the company’s common stock. This goal can be achieved by giving the shareholders a “fair” payment on their investments. Payout policy is vital not only because of the quantity of money concerned and the recurring nature of the decision, but also because payout policy is narrowly associated to, and relates with, nearly every financial and investment decisions firms make. Managers must decide the level of dividends, what repurchases to make, the amount of financial slack the firm carries, investment in real assets, mergers and acquisitions, and debt issuance. Since capital markets are neither perfect nor absolute, all of these decisions interrelate with one another.xl

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The Impact of Dividend Policy on Shareholders’ Wealth of Selected Major Pharmaceutical Units in India

As a result, the dividend payout trends of the companies under the study have been analyzed to assess dividend policy adopted by the companies. To test whether the actual dividend payout and trend value of dividend payout are significant or not, the following hypothesis is also framed and tested: H0 – There is no significant difference between actual and trend

values of dividend payout among the selected players during the study period. H1 There is significant difference between actual and trend

values of dividend payout among the selected players during the study period. In addition of this Kruskal Wallis test is also applied in order to overcome the precondition of normal distribution in case of ANOVA. H0 – There is no significant difference between dividend payout

of the selected Pharma players. H1 There is significant difference between dividend payout of

the selected Pharma players.

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The Impact of Dividend Policy on Shareholders’ Wealth of Selected Major Pharmaceutical Units in India

4.2 Analysis of Dividend Payout Trend of Alembic Table 4.1 Actual and Trend of Dividend Payout (In Percentage) of Alembic Limited (2001-02 to 2008-09) Year Dividend Pay Out 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Mean CV 13.83 10.65 17.33 16.34 18.09 20.27 19.11 86.46 Trend Indices It=(Yt/Yo)100 100 77.00650759 125.307303 118.1489516 130.802603 146.5654375 138.1778742 625.1626898 25.26 98.64 Trend Values (Yc = a + bX) 1.873333 8.555238 15.23714 21.91905 28.60095 35.28286 41.96476 48.64667

Yc= -4.80857+ 6.681905 X (X- in Units of years and Yc – in Percentage of Dividend Payout) Source: Computed From the Annual Reports of the Company

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The Impact of Dividend Policy on Shareholders’ Wealth of Selected Major Pharmaceutical Units in India

The figures of Dividend Pay Out in percentage of Alembic Limited with indices and trend values have been shown in the Table 4.1. Total Dividend Pay Out of the company have registered a rising trend form 13.83 percentage to 86.46 percentage throughout the period of the study from 2001-02 to 2008-09. Trend indices revealed increase from 100 in 2001-02 to 625.1626898 in 2008-09 i.e. increases of about more than 6 times during the period of the study. The linear least square trend values of Dividend Payout of Alembic have shown an annual increase of 6.68 percentages. In the years, 2004-05, 2005-06, 2006-07 and 2007-08 actual dividend payout...
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