STUDY OF DIVIDEND PAYOUT

PATTERN

ABSTRACT
Dividend policy has been an issue of interest in financial literature since Joint Stock Companies
came into existence. 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.
Dividend policy connotes to the payout policy, which managers pursue in deciding the size and
pattern of cash distribution to shareholders over time. Managements primary goal is
shareholders wealth maximization, which translates into maximizing the value of the company
as measured by the price of the companys common stock. This goal can be achieved by giving
the shareholders a fair payment on their investments. However, the impact of firms dividend
policy on shareholders wealth is still a debatable issue.
Dividend policy is one of the most complex aspects in finance. Three decades ago, Black (1976)
in his study on dividend wrote, The harder we look at the dividend picture the more it seems
like a puzzle, with pieces that just dont fit together. Why shareholders like dividends and why
they reward managers who pay regular increasing dividends is still unanswered.

INDEX
2 | Page

S. No.
1
2
3

Content
Introduction
Scope
The Study

Page No.
4
6
7

3a
3b
3c
3d
3e

Maruti Suzuki India Ltd

Mahindra & Mahindra
Tata Motors
Hyundai Motor Company
Volkswagen AG

8
11
15
19
22

4
5

Analysis as a Whole
Conclusion

25
26

3 | Page

INTRODUCTION
In the words of Ezra Salomon, In an uncertain world where verbal statement can be
misinterpreted or ignored, dividend speaks louder than 1000 words.
What is Dividend?
Dividends are payments made by a corporation to its shareholder members. It is the portion of
corporate profits paid out to stockholders.
What are different kinds of dividend?
1. Cash Dividends: This is the most common form of dividend. Cash dividends are those
dividends when simply cash is paid out of the profits.
2. Share Repurchases: The Company repurchases the stock. Shareholders pay tax only on the
capital gains portion.
3. Stock Split: It increases the number of shares in a public company. The price is adjusted such
that the before and after market capitalization of the company remains the same
and dilution does not occur.
4. Bonus Issue: It is a free share of stock given to current shareholders in a company, based
upon the number of shares that the shareholder already owns. While the issue of bonus shares
increases the total number of shares issued and owned, it does not change the value of the
company.
5. Right Issue: With the issued rights, existing shareholders have the privilege to buy a specified
number of new shares from the firm at a specified price within a specified time.
What are the different dividend policies?
Dividend policy can be of two types: managed and residual.
1. Managed dividend policy: distribution is pre-decided whether the company will be paying
same dividend per share over the time or it will be increasing dividend per share year by year.
2. Residual dividend policy: the amount of dividend is simply the cash left after the firm makes
desirable investments using NPV rule. The rule is- if the company does not have any positive
NPV projects to invest in, then it should pay shareholders dividend.
Normally, the amount of dividend is highly variable. If the manager believes dividend policy is
important to their investors and it positively influences share price valuation, they will adopt
managed dividend policy. Firms generally adopt dividend policies that suit the stage of life cycle
they are in. For instance, high- growth firms with larger cash flows and fewer projects tend to
pay more of their earnings out as dividends. The dividend policies of firms may follow several
interesting patterns adding further to the complexity of such decisions. Also, there are distinct
differences in dividend policy over the life cycle of a firm, resulting from changes in growth
rates, cash flows, and project investments in hand. Shareholders wealth is represented in the
market price of the companys common stock, which, in turn, is the function of the companys
investment, financing and dividend decisions. Among the most crucial decisions to be taken for
4 | Page

efficient performance and attainment of objectives in any organization are the decisions relating
to dividend. Dividend decisions are recognized as centrally important because of increasingly
significant role of the finances in the firms overall growth strategy. The objective of the finance
manager should be to find out an optimal dividend policy that will enhance value of the firm.
Like other important policy decisions dividend policy too has a signaling effect on the firms
share prices. Generally, announcements of dividend increases generate abnormal positive
security returns, and announcements of dividend decreases generate abnormal negative security
returns. This is due to the fact that the companys management has access to private and superior
information about future prospects and choose a dividend level to signal that private information.
Such a calculation, on the part of the management of the firm may lead to a stable dividend
payout ratio.
Dividend policy of a firm has implications for investors, managers and lenders and other
stakeholders, specifically the claimholders. For investors, dividends whether declared today or
accumulated and provided at a later date are not only a means of regular income, but also an
important input in valuation of a firm. Similarly, managers flexibility to invest in projects is also
dependent on the amount of dividend that they can offer to shareholders as more dividends may
mean fewer funds available for future investments. Lenders may also have interest in the amount
of dividends a firm declares, as more the dividend paid less would be the amount available for
servicing and redemption of their claims. The dividend payments present an example of the
classic agency situation as its impact is borne by various claimholders. Accordingly dividend
policy can be used as a mechanism to reduce agency costs. The payment of dividends reduces the
discretionary funds available with the management for perquisite consumption and investment
opportunities and requires them to seek financing in capital markets. This monitoring by the
external capital markets compels the managers to be more disciplined and act in owners best
interest.
Companies generally prefer a stable dividend payout ratio because the shareholders expect it and
reveal a preference for it. Shareholders may want a stable rate of dividend payment for a variety
of reasons. Risk-averse shareholders would be willing to invest only in those companies which
pay high current returns on shares. Similarly, educational institutions and charity firms prefer
stable dividends, because they will not be able to carry on their current operations otherwise.
Such investors would therefore, prefer companies, which pay a regular dividend every year. This
clustering of stockholders in companies with dividend policies that match their preference is
called clientele effect.

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SCOPE

1. Study of the annual reports of different automobile companies:

I.
Maruti Suzuki India Ltd.
II.
Mahindra & Mahindra
III.
Tata Motors
IV. Hyundai Motor Company
V. Volkswagen AG
2. For each company, annual reports are taken from the year 2006 (2006-07) to 2010 (201011).
3. The scope of the study of annual report is limited to the establishment of Dividend
Payout Pattern and the factors necessary for such establishment. These are:
I.
Sales
II.
Profit
III.
Interest charges
IV. Earnings per share
V. Total number of issued shares
VI.
Dividend proposed
VII.
Cash & Cash equivalents
VIII.
Market prices of share
IX.
Face value of share
X. Bonus Issue
XI.
Right Issue
XII.
Stock Repurchase
XIII.
Stock-Split
4. Following ratios have been worked out:
I.
Scale of firm's operation by taking Natural Log of Net Sales
II.
Profit as a %age of sales
III.
Dividend Yield
IV. Dividend Payout Ratio
V. Dividend Ratio
VI.
Debt Equity Ratio

6 | Page

THE STUDY

7 | Page

COMPANY 1

Name: Maruti Suzuki India Ltd

Business: Manufacturing of Passenger Cars
Head Office: New Delhi, India
Establishment: 1981
Sales in year 2010-11: Rs 36128 crores
Profits in year 2010-11: Rs 2288 crores
Dividend proposed in year 2010-11: Rs 7.5 per share
Currency: Rupees

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Data for Cash Dividend:

Year/Variable
s

Scale

2010-11
(2010)
2009-10
(2009)
2008-09
(2008)
2007-08
(2007)
2006-07
(2006)

12.7974
1
12.6155
2
12.2238
3
12.0929
2
11.8908
3

Profit
% of
Sales

Dividen
d Yield

Dividen
d
payout

6.33%

0.47%

9.47%

8.29%

0.25%

6.94%

5.99%

0.65%

8.30%

9.69%
10.70
%

0.54%
0.43%

Dividen
d Ratio
150.00
%
120.00
%

Debt
Equity

8.07%

70.00%
100.00
%

7.00%
11.00
%

8.32%

90.00%

9.00%

2.00%
7.00%

Maruti Suzki
160.00%
140.00%
120.00%
100.00%
80.00%

Dividend Ratio
Dividend payout

%age

60.00%
40.00%
20.00%
0.00%

9 | Page

Dividend & Earnings per Share

100
90
80
70
60
50

in INR

40

DPS
EPS

30
20
10
0

Interpretations:
1. Since there is no Stock-Split in last 5 years, therefore, the shape of the graphs of
Dividend Ratio and Dividend per Share is same.
2. Dividend Payout ratio, which is Dividend per share divided by Earning per share, has
shown minor variation over the period of 5 years. It ranges from 6.94% to 9.47%.
3. Dividend ratio, which is Dividend per share divided by Face-Value/Par-Value of the
share, has seen uphill trend except the year 2008-09. Year 2008-09 saw recessionary
conditions throughout the world. Although the net sales had increased by 13.98% in
2008-09, but profits had declined by 29.58%. This decline was responded by decline
in dividend ratio.

Other forms of Dividend:

1. Bonus Issue: It never issued Bonus Shares.
2. Stock Repurchases: It never announced Stock-Repurchases.
3. Right Issue: Maruti Suzuki India ltd. never came out with its 2nd IPO. So it never had
Right Issue.
4. Stock-Split: The Face-Value of its share during IPO was Rs 5/- and today even, it is still
the same. So it never had Stock Split.
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COMPANY 2

Name: Mahindra & Mahindra

Business: Manufacturing of 2-Wheelers, Passenger Cars, Commercial Vehicles & Farm Vehicles
Head Office: Mumbai, India
Establishment: 1947
Sales in year 2010-11: Rs 23494 crores
Profits in year 2010-11: Rs 2662 crores
Dividend proposed in year 2010-11: Rs 11.5 per share
Currency: Rupees

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Data for Cash Dividend:

Year/Variables
2010-11
(2010)
2009-10
(2009)
2008-09
(2008)
2007-08
(2007)
2006-07
(2006)

Scale

Profit
% of
Sales

Dividen
d Yield

Dividend Dividend Debt

payout
Ratio
Equity

10.06449 11.33%

1.65%

24.89%

230.00% 23.00%

9.83103

11.22%

1.74%

25.02%

190.00% 37.00%

9.47988

6.39%

5.22%

31.42%

100.00% 77.00%

9.36495

9.45%

3.31%

24.87%

115.00%

60.00%

9.23220

10.45%

2.95%

25.47%

115.00%

46.00%

Mahindra & Mahindra

250.00%

200.00%

150.00%
Dividend Ratio

%age

100.00%

50.00%

0.00%

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Dividend payout

Dividend & Earnings per Share

50
45
40
35
30
25

in INR

20
15
10
5
0

Interpretations:
1. Since there is Stock-Split in March 2010, therefore, the shape of the graphs of Dividend
Ratio and Dividend per Share is different.
2. Mahindra & Mahindra is one of those Automobile Companies which believes in sharing
major chunk of profits with its shareholders. The company distributed dividend on
consistent basis with some minor variations. Its dividend payout ratio ranges from
24.47% to 31.42%.
3. Although by analyzing the above graph, one can say that company is following stable
dividend policy. But on the face of it, there is 2-fold jump in Dividend ratio from year
2008-09 to 2010-11. This is due to the Stock-Split.

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DPS
EPS

Other forms of Dividend:

1. Bonus Issue (History):

2.
3.

4.

Announcement Date

Bonus Ratio

Record Date

Ex-Bonus Date

14/06/2005
07/11/1995
29/04/1984
29/04/1980

1:1
2:3
2:3
1:1

02/09/2005
23/01/1996
-

01/09/2005
20/12/1995
-

Stock Repurchases: It never announced Stock-Repurchases.

Right Issue (History):
Announcemen
t Date

Right
Ratio

Face
Value
(Rs)

Premiu
m (Rs)

Record
Date

Ex-Right
Date

30/09/1992

1:5

27/08/199
2

26/06/199
2

Existing Offered
Inst.
Inst
Name
Name
Equity
NCD
Share

Stock-Split: The company had fixed March 30, as the 'Record Date' for the purpose of
ascertaining the list of shareholders who would be entitled to receive two equity shares of the
face value of Rs 5 each in lieu of every one equity shares of the face value of Rs 10 held by
them. On 29th march, 2010 Mahindra & Mahindra has gained 4% at Rs 560. The stock today
is traded at the ex-split price, the face value of stock is now Rs 5 paid-up from Rs 10 paid-up
earlier.

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COMPANY 3

Name: Tata Motors

Business: Manufacturing of Passenger Cars & Commercial Vehocles
Head Office: Mumbai, India
Establishment: 1945
Sales in year 2010-11: Rs 122932 crores
Profits in year 2010-11: Rs 9221 crores
Dividend proposed in year 2010-11: Rs 20 per share
Currency: Rupees

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Data for Cash Dividend:

Year/Variables
2010-11
(2010)
2009-10
(2009)
2008-09
(2008)
2007-08
(2007)
2006-07
(2006)

Scale

Profit
% of
Sales

Dividend Dividen
Yield
d payout

Dividen
d Ratio

Debt
Equity

11.71939

7.50%

8.02%

13.76%

200.00% 172.00%

11.42628

2.74%

9.92%

34.01%

150.00% 429.00%

11.17896

-3.44%

16.64%

-10.95%

60.00%

10.47484

6.31%

12.87%

25.88%

150.00% 134.00%

10.37557

6.88%

11.03%

26.22%

150.00%

673.00%

95.00%

Tata Motors
250.00%

200.00%

150.00%
Dividend Ratio

%age

100.00%

50.00%

0.00%

-50.00%

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Dividend payout

Dividend & Earnings per Share

200

150

100
DPS
EPS
in INR

50

-50

-100

Interpretations:
1. Since there is no Stock-Split in last 5 years (2006-2010), therefore, the shape of the
graphs of Dividend Ratio and Dividend per Share is same.
2. In the last 5 years (2006-2010), there is huge variation in Dividend Payout ratio, which
ranges from (-ve)10.95% to 34.01%. There was (-ve)10.95% Dividend Payout ratio
because dividends were in year 2008 despite posting losses to the tune of Rs 2465 crores.
3. There is decline in Dividend Payout Ratio in 2010 but Dividend Ration has increased in
the same year. This is because the profits, in year 2010, have increased by 266% from
Rs2516.89 crores to Rs 9220.79 crores. So the Dividend Payout Ratio has decline but not
the Dividend Ratio.

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Other forms of Dividend:

1. Bonus Issue (History):
Announcement
Date
28/09/1995
29/04/1982
29/04/1979
29/04/1977

Bonus Ratio

Record Date

Ex-Bonus Date

3:5
2:5
2:5
1:5

01/11/1995
-

04/10/1995
-

2. Stock Repurchases: It never announced Stock-Repurchases.

3. Right Issue:
Announcement
Date
15/06/2001

Right
Ratio
1:4

Face
Value
(Rs)
0

Premium
(Rs)
0

Record
Date

Ex-Right
Date

Existing
Inst.
Name

Offered
Inst. Name

29/08/200
1

Equity
Share

Convertibl
e
Debenture

Note: One 7% CD of Rs.65 each on rights basis for every 4 existing Equity Shares of Rs.10 each held. (every 5 CD
would also have 1 detachable and tradeable equity warrant) and One 11% NCD of Rs.100 each on rights basis for
every 10 existing Equity Shares held.

28/05/2008

1:6

330

Equity
Share

Equity
Share

Note: Rights issue of Ordinary shares in the ratio of 1 Ordinary share for every 6 shares held. The Ordinary Shares
would be issued at a price of Rs. 340/- per share of face value of Rs. 10/- each

29/05/2008

1:6

295

16/09/2
008

09/09/200
8

Equity
Share

Equity
Share

Note: Rights issue of 'A' Ordinary shares in the ratio of 1 Ordinary share for every 6 shares held. The 'A' Ordinary
Shares would be issued at a price of Rs. 305/- per share of face value of Rs. 10/- each.

4. Stock-Split: Ex-split date 12th September, 2011. Tata Motors Ltd has informed BSE that
September 13, 2011 has been fixed as the Record Date for the purpose of Sub-Division /
stock split of Ordinary and 'A' Ordinary Shares (collectively 'the shares') of Rs. 10/- per
share of the Company into the shares of Rs. 2/- each.

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COMPANY 4

Name: Hyundai Motor Company

Business: Manufacturing of Passenger Cars & Commercial Vehicles
Head Office: Seoul, South Korea
Establishment: 1967
Sales in year 2010: 36769426 million Won
Profits in year 2010: 5266971 million Won
Dividend proposed in year 2010: 1195 Won per share
Currency: Won

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Data for Cash Dividend:

Year/Variables

Scale

2010-11 (2010)
2009-10 (2009)
2008-09 (2008)
2007-08 (2007)
2006-07 (2006)

17.42018
17.27684
17.28716
17.23715
17.12369

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Profit
% of
Dividend
Sales
Yield
14.32%
0.90%
9.30%
1.00%
4.50%
2.20%
5.49%
1.40%
5.58%
1.50%

Dividend
payout
5.96%
8.13%
12.28%
12.41%
13.64%

Dividend
Ratio
23.90%
17.79%
6.14%
14.43%
15.65%

Debt
Equity
96.50%
103.27%
114.95%
96.98%
89.17%

Hyundai
30.00%

25.00%

20.00%

15.00%

Dividend Ratio
Dividend payout

%age

10.00%

5.00%

0.00%

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Dividend & Earnings per Share

25000

20000

15000

in KOREAN WON

10000

DPS
EPS

5000

Interpretations:
1. Since there is no Stock-Split in last 5 years (2006-2010), therefore, the shape of the
graphs of Dividend Ratio and Dividend per Share is same.
2. In last 5 years (2006-2010), Dividend Payout Ratio has consistently decline from 13.64%
to 5.96%.
3. Although there is consistent decline Dividend Payout Ratio, but Dividend per Share has
increased in year 2009 and 2010. This is due to the increase in the net profits of the firm.

Other forms of Dividend:

1. Bonus Issue: It never issued Bonus Shares.
2. Stock Repurchases: It never announced Stock-Repurchases.
3. Right Issue: Hyundai hasnt come up with any IPO recently. So it didnt have Right
Issue in last 5 years.
4. Stock-Split: The Face-Value of its share is 5000 Korean won and it hasnt seen any stock
split in the last 5 years.

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COMPANY 5

Name: Volkswagen AG
Business: Manufacturing of Passenger Cars, Commercial Vehicles & Engines
Head Office: Wolfsburg, Germany
Establishment: 1937
Sales in year 2010: 126875 million Euros
Profits in year 2010: 7226 million Euros
Dividend proposed in year 2010: 2.2 Euros per share
Currency: Euros

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Data for Cash Dividend:

Year/Variables
2010-11
(2010)
2009-10
(2009)
2008-09
(2008)
2007-08
(2007)
2006-07
(2006)

Scale

Profit
% of
Sales

Dividend Dividen
Yield
d payout

Dividen
d Ratio

Debt
Equity

11.75096

5.70%

2.08%

14.50%

309.80%

11.56349

0.87%

2.08%

67.51%

374.00%

11.64227

4.12%

0.77%

16.19%

348.00%

11.59816

3.79%

1.15%

17.26%

354.00%

11.56052

2.62%

1.46%

17.68%

407.60%

Volkswagen
80.00%

70.00%

60.00%

50.00%
Dividend payout

%age

40.00%

30.00%

20.00%

10.00%

0.00%
2006-07 (2006)

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2007-08 (2007)

2008-09 (2008)

2009-10 (2009)

2010-11 (2010)

Dividend & Earnings per Share

16
14
12
10
8

in EUROS

DPS
EPS

4
2
0

Interpretations:
1. The Dividend Payout Ratios are highly variable. Initially it is hovering around 17%, then
there is evident jump of 67.51% which again decline to 14.41%.
2. Dividend per share has seen constant increase in amount. 2009 is the only year which has
seen the decline in Dividend per share. This is due to the low profits of 911 million Euros
which was .87% of the sales of that year.

Other forms of Dividend:

1.
2.
3.
4.

Bonus Issue: No Bonus Shares in last 5 years.

Stock Repurchases: No announcement of Stock-Repurchases in last 5 years.
Right Issue: No Right Issue in last 5 years.
Stock-Split (History):Since the start of trading in 1961, Volkswagen AG shares have
been subjected to two Stock Splits the first was on 17 March 1969 when they were split
at a ratio of 2:1, from a DM 100 share to a DM 50 share. The second split occurred on 6
July 1998, the DM 50 share being converted into a share of no overall nominal value, at a
ratio of 1:10.

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ANALYSIS AS A WHOLE
A. Standard Deviation for the Dividend Payout Ratio, Year-Wise
(Inter Companies):
Year
Mean
St. Dev
2010-11 (2010)
13.72%
7.141
2009-10 (2009)
28.32%
24.725
2008-09 (2008)
11.45%
15.089
2007-08 (2007)
17.7%
7.739
2006-07 (2006)
18.27%
7.692
High Standard Deviation means high scatteredness of the data from the mean.

B. Standard Deviation for the Dividend Payout Ratio, Company-Wise

(Inter Years for 5years):
Company
Maruti Suzuki India Ltd.
Mahindra & Mahindra
Tata Motors
Hyundai Motor Company
Volkswagen

Mean
8.22%
26.33%
17.78%
10.48%
26.63%

St. Dev.
.91
2.84
17.41
3.27
22.88

1. The Standard Deviation of Dividend Payout Ratio of Maruti Suzuki India Ltd is .91,
which means there is very low variation in its Dividend Payout Ratio.
2. Whereas, Standard Deviation of Dividend Payout Ratio of Volkswagen is 22.88, it
means there is high variation in its Dividend Payout Ratio.

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CONCLUSION:
There is no fixed pattern in the distribution of Dividend of the Automobile Industry. But pattern
could be worked out for different Companies.
I.

Maruti Suzuki India Ltd, followed a stable Dividend Payout Ratio with mean of 8.22%.

II.

Mahindra & Mahindra, followed a stable Dividend Payout Ratio with mean of 26.33%.

III.

In Tata Motors, Dividend Payout Ratio has varied from (-ve)10.95% to 34.01%, over the
period of last 5 years. Despite losses, in 2008, it distributed Dividend Per Share of Rs. 5

IV.

In Hyundai Motor Company, there is a gradual decrease in Dividend Payout Ratio in last
5 years from 13.64% to 5.96%.

V.

There is Volkswagen, which in year 2009 distributed 67.51% of the profits among its
shareholders despite having very low profit for that year, otherwise there DPS is hovering
around 16.5%.

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