Dividend Payout Policy_ Individual Assignment

Topics: Hutchison Whampoa, Dividend Pages: 6 (1220 words) Published: October 28, 2014
AF4320 Corporate Finance
Semester 1, 2013-2014
Individual Written Assignment
This essay will trace the dividend payouts of three public companies in the last consecutive fifteen years and find the key factors which affect a company’s payout policy. The three public companies, namely Hutchison Whampoa Limited (HWL), CLP Holdings Limited (CLP), and The Bank of East Asia (BEA), are all the constituent stocks of the Hang Seng Index.

 Dividend Payout History over Last Fifteen Years
Figure 1.1

A glance at the figure provided reveals changes in HWL’s dividend payout in the last consecutive fifteen years. During this period, HWL’s dividends per share (DPS) climbed steadily from $1.16 to $2.08, with only four changes, while the company’s earnings per share (EPS), an indicator valuating a company’s financial performance in terms of how much earnings made for equity holders, fluctuated greatly, ranging from a low of $1.72 to a peak of $27.65. It should be noted with great attention that HWL’s DPS had remained unchanged at $1.73 for ten consecutive years before it rose again to $1.92 in 2010.

 Dividend Policy
As one of the biggest corporations in Hong Kong, HWL has long been dedicated to providing stably increasing returns to its investors (HWL, Annual Report 2012). The actual dividend payouts follow quite consistent with the company’s statement: four moderate rises without any decrease, as demonstrated by the above figure. Figure 1.2

The dramatic difference between the
standard deviation of EPS (6.66) and the
standard deviation of DPS (0.22) also
indicate that HWL’s dividend payouts
have kept stable regardless the company’s
income levels. This pattern could be
called dividend smoothing.

 Associated Factors Discussion
HWL is a large multinational corporation that operates a variety of businesses in 52 countries across the world. Its operations consist of: ports and related services, property and hotels, retail, infrastructure, energy, and telecommunications. Considering the scope and nature of the business, a long-term target level of dividend is of great importance in maintaining the HWL’s recognition and also fulfilling the

company’s commitment. Thus it is reasonable to expect HWL to alter dividend payout levels conservatively. In fact, except the increase in 1999, all three other increases in dividend payouts accomplished with higher average EPS (as shown in Figure 1.2). It is very likely that HWL generally set dividends at a level it expect to be able to maintain based on the company’s earning prospects.

 Dividend Payout History over Last Fifteen Years
Figure 2.1

Given is a figure illustrating CLP’s dividend payouts from 1998 to 2012. Except for 2002, the company’s dividends grew continuously from $1.81 to $2.57 within the period. This change is steady, given that the standard deviation of DPS is only 0.28. 

Dividend Policy

Figure 2.2

CLP is committed to creating value for its
shareholders in the form of dividends and
share price appreciation. The company
distributes cash dividends four times
throughout every single year. The virtually
constant increase in payout level, together with the low standard deviation of DPS (0.28), implies that CLP is acting comply with its articulated policy.  Associated Factors Discussion
Unlike HWL which decides to raise the payout level only if it seems that the company would anticipate higher EPS continually in the future, CLP increases dividends without much consideration on its earnings. As shown in the figure, even though the EPS in recent two years drops, the DPS still increases slightly. Considering that CLP is an energy company that provides daily utilities, its profitability is very likely to maintain stable whatever the economic condition is (the standard deviation of EPS for CLP is only 0.72, with a low coefficient at only 20.23%). Thus the company has the ability to smooth dividend payouts.

Figure 2.3
Source : Google...

References: Brealey, Richard A., Myers, Stewart C., and Allen, Franklin (2014) Principles of
Corporate Finance. 11th Global Edition, McGraw-Hill Education.
CLP Holdings Limited (2013) Annual Report 2012
CLP Holdings Limited (2008) Annual Report 2007
CLP Holdings Limited (2003) Annual Report 2002
Hutchison Whampoa Limited (2013) Annual Report 2012
Hutchison Whampoa Limited (2008) Annual Report 2007
The Bank of East Asia (2013) Annual Report 2012
The Bank of East Asia (2008) Annual Report 2007
The Bank of East Asia (2003) Annual Report 2002
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