Current Dividends Policy Assessment
“Having a clear dividend growth model targeting two dividend increases per year to 2013 of circa 10% annually subject to the TELUS Board’s assessment and determination” (Telus) Telus’s current dividend policy is to continue with its forward-looking dividend growth plan until at least the year of 2013. The plan is aimed to achieve two dividend increases per year with an annual growth rate of 10%. Of the two companies, Telus has a higher-than-industry dividend payout ratio. As compared to a industry level of 46.37%, in 2011, the dividend payout ratio of Telus was 59%, that is 13% percent higher than the industry level of 46% (Reuters, 2012), whereas, the payout ratio of Rogers in 2011 was 49%, slightly above the industry level. In 2011, both companies used cash to pay dividend, expect for that Rogers also use share repurchase to return part of its profit to the shareholders. Both of the companies encourage dividend reinvestment and each lauched a dividend reinvestment plan. Under this Plan, investors are allowed to enjoy the benefit to automatically acquire non-voting shares at market price without brokerage commissions or service charges. Dividends Policy Factors
Tax: In Canada, dividend incomes are subject to a higher tax than in the form of capital gains. For a firm that has lower dividend payout ratio, it has extra cash to reinvest in more positive NPV project, which increases the value of the firm and the equity. This lead to higher capital gains that are otherwise taxable as a result of dividend payout. In this sense, Telus, as a higher dividend payer, may create a heavier tax burden to its shareholders than Rogers does. In addition, due to the fact that Rogers also applied shares repurchase approach to distribute profits to its shareholders, its shareholders can enjoy a lower tax on capital gains. Flotation costs: since Rogers has a lower dividend payout ratio, its equity will growth faster by investing that extra...
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