Dividend PolicyComparison

Objective

To know the cause and effect association between dividend decision and its determinants in Indian IT industry and cement industry. And also do a comparative analysis between the two.

Determinants of Dividend Policy

Profit After Tax

Lagged Dividend

Current Ratio

Debt Equity Ratio

Interest Payment

Sales

Market Capitalization

Earning Per Share

Payout Ratio

Capital Expenditure

• Descriptive statistical analysis is used to analyze trend of dividend payout for both the industries over the horizon of study. •Correlation of various factors influencing dividend policy is done to identify degree of influence of different factors

Methodology

•Secondary data has been collected from ‘capitaline database’.

• Data was collected for a sample of 20 companies for both the sectors (IT industry and cement industry).

•The sample includes the companies which have paid dividends over a major portion of the horizon of study.

• The period of study includes data from a period of 1995 to 2009

Data Collection

DESCRIPTIVE ANALYSIS

FOR IT INDUSTRY

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

500

1000

1500

2000

2500

IT Industry

PATPayout (%)dividend

Rs. M

illio

n

FOR CEMENT INDUSTRY

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-200

-100

0

100

200

300

400

Cement Industry

PATPayout (%)Dividend

Rs. M

illio

n

The first major observation that can be made for both the industries is the fairly constant payout ratio over a long period. Also the dividends paid in the IT industry have been fairly high as compared to that in cement industry owing to higher and more certain earnings.

COMPARATIVE ANALYSIS

Sales PATMarket

CapitalisationDebt-Equity

RatioCurrent Ratio

Payout (%)

Capital Employed

Interest EPS dividend

Sales 1.000PAT 0.995 1.000

Market Capitalisation

0.659 0.693 1.000

Debt-Equity Ratio

-0.441 -0.502 -0.668 1.000

Current Ratio 0.058 0.077 0.281 -0.361 1.000Payout (%) 0.212 0.229 0.643 -0.499 -0.063 1.000

Capital Employed

0.972 0.952 0.535 -0.325 0.105 0.096 1.000

Interest 0.668 0.602 0.084 0.149 0.030 -0.231 0.803 1.000EPS 0.348 0.364 -0.068 -0.394 -0.121 0.175 0.385 0.228 1.000

CORRELATION FOR IT INDUSTRY

Net Sales PATMarket

Capitalisation

Debt-Equity Ratio

Current Ratio

Payout (%)

Capital Employed

Interest

Dividend

Net Sales 1.000PAT 0.852 1.000

Market Capitalisation

0.636 0.758 1.000

Debt-Equity Ratio

-0.465 -0.393 -0.144 1.000

Current Ratio -0.212 -0.071 -0.178 0.260 1.000Payout (%) 0.103 0.249 0.339 -0.312 -0.058 1.000Capital Employed

0.805 0.484 0.301 -0.448 -0.334 0.036 1.000

Interest -0.050 -0.512 -0.420 -0.155 -0.280 -0.205 0.358 1.000Dividend 0.934 0.928 0.693 -0.589 -0.164 0.318 0.678 -0.253 1.000

CORRELATION FOR CEMENT INDUSTRY

•In both industries factors impacting the dividend policy are almost same but the degree of influence is quite different.

•Sales and PAT are the most significant factors imparting dividend paying capacity to the firms.

•Since in the cement industry average Debt-equity ratio is higher, it has higher negative impact on dividend policy.

•Also the earnings of IT companies have larger portion in the form of cash inflows and thus have enough capacity to pay dividends out of earnings (PAT) with lesser effect of current ratio.

COMPARATIVE ANALYSIS

•Since 1995 ,despite of all the uncertainties in environment and earnings both the industries have maintained fairly constant payout ratio.

•But IT industry owing to higher earnings have distributed larger amount in the form of dividends while the cement industry has been more conservative in the approach.

•The factors impacting the dividend policy of the companies in both the sectors have been fairly same in the long term though the degree of influence has been different.

•Both the industries follow almost same approach in paying out dividends with few factors like PAT and Debt-Equity ratio explaining majority of decisions regarding dividend policy.

CONCLUSION

GROUP -7Anmol Sahni – 91009Ashutosh Kumar Jha- 91011Chinmay Jagga – 91013Deepinder Singh – 91016Divanshu Kapoor - 91017Neha Arya – 91036