Dividend Policy of Large Publicly-Traded Company: Tesco

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  • Topic: Dividend, Dividend reinvestment plan, Dividends
  • Pages : 8 (1794 words )
  • Download(s) : 183
  • Published : April 15, 2012
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Assignment Title:
Dividend Policy of Large Publicly-Traded Company: TESCO

Kristina Danielyan
Student ID: I075807

CONTENT

1. Introduction……………………………………………………………………Page 2 2. DIVIDEND POLICY………………………………………………………….Page 2 2.1. Dividend Policies: advantages and Disadvantages …………………………Page 3 2.1.1. Fixed Percentage pay-out ratio Policy……………………………………..Page 3 2.1.2. ZERO Dividend Payment Policy …………………………………………..Page 3 2.1.3. Constant or Steadily Increasing Dividend Policy………………………….Page 3 2.2. Dividend Policies in Practice………………………………………………….Page 4 2.3. Effect of Dividend Policy on Shareholder Wealth…………………………..Page 5 3. CONCLUSION…………………………………………………………………..Page 5 Reference………………………………………………………………………...Page 6 Bibliography…………………………………………………………………..…Page 7

1. Introduction

What is Dividend? What are the Dividend Policies for? How they work and what are their advantages and disadvantages? Let’s find the answers to these simple questions and after we have them, let’s determine and evaluate the dividend policy of TESCO based on the information we have from published sources.

2. DIVIDEND POLICY
Dividend is a cash payment made to shareholders on a quarterly or semiannual basis by a company. Both dividends and associated with the tax liabilities are cash transactions therefore managers of the company should appreciate the real effect of the proposed dividends on the Liquidity position of Company ,even though if company performs high level of profit.

Actually, the Dividend Decision of the company, which judges between the earnings to be retained and the amount to be distributed to shareholders, is interrelated with two main decisions of the company: the investment decision, when the appropriate investment decisions on profitable projects are being made and finance decision, when the fundraising is the most important tool to be able to finance that beneficial projects. This interrelationship can be shown in the Table 1. Table 1 Denzil Watson and Antony Head , Corporate Finance Principals and Practice (4th edition), Chapter 1, page 7, Exibit 1.2

|Investment: company decides to |Finance: company will need to raise finance|Dividends: if finance is not available| |take on a large number of |in order to take up projects |from external sources, dividends may | |attractive new investment | |need to be cut in order to increase | |projects | |internal financing | |Dividends: company decides to pay|Finance: lower level of retained earnings |Investment: If finance is not | |higher level of dividends to its |available for investment means company may |available from external sources the | |shareholders |have to find finance from external sources |company may have to postpone future | | | |investment projects | |Finance: company finances itself |Investment: due to a higher cost of capital|Dividends: the company's ability to | |using more expensive sources, |the number of project attractive to the |pay dividends in the future will be | |resulting in a higher cost of |company decreases |adversely affected | |capital | | |

2.1. Dividend Policies: Advantages and Disadvantages

2.1.1. Fixed Percentage pay-out ratio Policy: using this policy company pays dividends to shareholders on a fixed...
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