TESCO PLC

ASSESSMENT:

Assignment

DEPARTMENT:

Lincoln Business School

MODULE:

Advanced Financial Management

MODULE CODE:

FIN3026M

LEVEL:

Three

CO-ORDINATOR:

David Latham

NAME:

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TESCO PLC
Introduction:
Dividends are basically portion of companys earnings distributed among its
shareholders. The portion which is to be given to the shareholders is decided by companys
Board of Directors. Dividends can be in the form of property, stock or cash (Anon, 2014).
Mostly stable and secured organizations offer dividends to its shareholders. Sometimes, we see
that there are companies having high growth but still they do not offer dividends, this is due to
the fact that the profits obtained by the company is re-invested to achieve higher growth.
Dividend per share (DPS) is the amount of dollar each share receives (Anon, 2014).
The generation of mutual funds pays the dividends and interest income to its shareholders
received from portfolio holdings.

Dividend History:
In this report, Tesco PLC is chosen whose dividend policy announcements for a period of
10 years will be analysed. In the following table, the dividend history of Tesco PLC shall be
discussed. All dividend payments are made before September 2014.

Year

Description

Div. for Period

(Pence Per
Share

Ex-Dividend
Date

Record
Date

Payment
Date

2013

Interim
Prelim
Interim
Prelim
Interim
Prelim
Interim
Prelim
Interim
Prelim
Interim

4.63
10.13
4.63
10.13
4.63
10.09
4.37
9.16
3.89
8.39
3.57

9/10/2013
24/04/13
10/10/2012
25/04/12
12/10/2011
27/04/11
13/10/10
28/04/10
14/10/09
29/04/09
8/10/2008

11/10/2013
26/04/13
12/10/2012
27/04/12
14/10/11
3/5/2011
15/10/10
30/04/10
16/10/09
1/5/2009
10/10/2008

20/12/13
5/7/2013
21/12/12
6/7/2012
23/12/11
8/7/2011
24/12/10
9/7/2010
24/12/09
10/7/2009
19/12/08

2012
2011
2010
2009
2008

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TESCO PLC

2007
2006
2005
2004

Prelim
Interim
Prelim
Interim
Prelim
Interim
Prelim
Interim
Prelim

7.7
3.2
6.83
2.81
6.1
2.53
5.27
2.29
4.77

Table 1:

23/04/08
10/10/2007
25/04/07
11/10/2006
3/5/2006
28/09/05
20/04/05
29/9/2004
28/4/2004

25/04/08
4/7/2008
12/10/2007
21/12/07
27/04/07
6/7/2007
13/10/06
22/12/06
5/5/2006
14/07/06
30/09/05
9/12/2005
22/04/05
1/7/2005
31/10/04
26/11/2004
30/4/2004
25/6/2004

Dividend History of Tesco PLC

At Tesco, dividends are paid to its shareholders in two periodic dividends, i.e. in semiannual amounts. Dividends are paid can be paid in two forms depending upon its shareholder. It
is paid out either in the form of cash or shares of Tesco are being bought (Tesco plc, 2014).
(Table 1, 2014) depicts two kinds of dividends being paid; Interim & Prelim. The interim
dividend payment is made before launch of company's final financial statements. This dividend
supplements with Tescos interim financial statements. The Prelim dividend is a dividend
declared after the decision of BoD (Board of Directors) and the launch of full financial
statements (Accountingtools.com, 2014).
Pence per share are the dividend for the particular period. The Ex-date is the date on
which shares are sold out without any entitlement to the preceding dividend payment. If
shareholder buys any share before the ex-dividend date then that person is entitled to the most
recently-announced dividend. If dividend is bought after that date then the dividend is paid to
previous share owners. On the record date, dividend is paid held on the share register based on
the number of shares. The record date come one two days after the ex-dividend date. If
shareholder is not sure about the entitlement of the bought dividend, he/she should contact the
agent from whom shares have been bought. When dividends are finally paid in the form of cash
or shares to the shareholders, that date is called the payment date.
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TESCO PLC

Dividends
16
14

Pence Per Share

12
10
8
6
4
2
0
Dividends

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
14.76 14.76 14.72 13.53 12.28 11.27 10.03 8.91 7.8 7.06

Figure 1: Dividend Pay Trend of Tesco Plc. 2004-2013

The bar chart shows that the dividend pay trend in year 2012-2013 was same. If we take a
closer look, we can see the dividend pay-out from year 2004 till year 2013 is gradually rising.
The interim and prelim dividends are combined together and then the final dividend is paid out in
the particular year. The bar chart demonstrates the final dividends paid by Tesco in the
corresponding years (Anon, 2014).
The dividend policy of the organization helps in contributing in very crucial activities.
The most important activities in any company are investing and financing activities (Steinhoff, J.
2000).

We will comprehend how dividend policies of Tesco are contributing towards

maximizing shareholders wealth & we will further comprehend the dividend trends of the
company.
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TESCO PLC

Dividends Payback:
The payment of dividends plays an important role in boosting up the market value of
Tesco. The company can maximize its shareholder value in a way that the price at which shares
or assets would be sold in the market, this setting will increase the market value. Tesco has been
paying scrip dividends as well, this includes in the selling of additional shares to shareholders. In
this way, Tesco doesnt need to pay out cash to its shareholders.

Dividend Policy Price Estimate:

Tesco uses underling Earnings per Share (EPS) as the basis for their dividend policy. The
amount of underlying profit which is adjusted for the number of issued shares is the underlying
diluted EPS (Earnings per Share). The company has 8033 million outstanding shares and the
weighted cost of equity is taken as 8%. The cash surplus for year 2013 is 5 million.
This contributes to the estimation of paying cash per dividend

Similarly, when we will calculate the total cash back dividend, we will use the following price
estimate:

=0.0463 (Pence per share) + 10.13 (Pence per share)

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TESCO PLC

Total Price of dividend =14.73 (Pence per share)

Share-Holder Wealth Maximization:

It is important to know that while dividend prices are being accumulated, the stock prices
also plays a role along with it. The stock prices are the ones affecting the shareholders wealth.
The shareholder wealth maximization is also dependent on companys retained earnings as well.
The increment in the wealth is done if the common or ordinary stock has been traded on high
prices. The shareholders are the ones who risk their capital and hand over it to the company in
lieu of a promised asset (Cash or shares) that will assist them in the long run.
As informed earlier, Tesco has been following the EPS ratio for assisting their dividend
policy. In the annual report (Anon, 2014), we came to know that earnings per share in 2013 was
rather low than previous year but still Tesco paid the dividend as it was the previous year (2012).
This dividend was paid to the shareholders due to the accumulated retained earnings of Tesco. It
is important to know that if the company has accumulated retained earnings then it I necessary to
pay cash to its shareholders. If the cash is not available then the company will borrow in order to
give back the cash balances to its share owners. This is another reason, Tesco has borrowed
finance on interest from banks mentioned in the annual report (Anon, 2014),
It is important to know that Stakeholder is any group or an individual who can affect or
is affected by the achievement of an organizations purpose Lawteacher.net, (2014). This
argument can also be presented as that whether shareholders are the ones whose wealth is
affected by dividend payment methods or these dividend payment methods of company is aiding
them in terms of achieving higher growth.

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TESCO PLC
From the dividend yield pattern mentioned in the (Table 1, 2014), there seems like Tesco
has been trying to gradually accelerate the dividend pay-out for its share owners. In a way, this
demonstrates that Tescos directors know that their chief responsibility is to work for their
shareholders wealth maximizations. Any actions or activities pointing that they have been more
reluctant towards the company is an indication that they have been violating their duties. A point
that favours Tesco, is that they are growing and dedicated to achieve superior results and they
keep on assuring shareowners that companys actions are affiliated with their expectations.

Tesco Share Price History:

Figure 2:

Share Price History of Tesc0

(Figure 2, 2014) demonstrates the share price history of Tesco. In the above figure, we can
analyse the rise and downfall of share prices. Multiple factors are responsible for a high or low
share price. As we are specifically discussing dividends, we will focus on the retained earnings

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TESCO PLC
given as dividends. Beginning from year 2004 we can see that the share price has started to rise.
The share price has been rising and gone to its peak in year 2009. Fluctuations in the prices were
also observed but Tesco maintained its share prices. The reason for the higher share price is due
to the manipulation. Sometimes company manipulate their share prices in order to get higher
returns. The company buy back their shares and try to hold shares in order to make shares scarce
and buyers assume that the share price shall rise. In the end, the shareholders of the company buy
more shares in the form of dividends. In this situation company does not need to pay off cash
instead they give dividends. In year 2009, Tesco achieved higher growth. They opened many
outlets and they implied a different structure in order to give rise to high sales fulfilling customer
demands.
Currently, in year 2013 the share price went to 336.35, the opening bid was 340.35; trade
high at 341.30 while trade low was recorded as 334.81. The above figure depicts amazing share
price evolution over time. One of the greatest factor that has affected share price is the rate of
inflation and as the competition is getting tougher among the competitors, the customers buying
power is on higher demand.

Investing Decisions:
(Tesco plc, 2014) Tesco has been investing largely on their marketing campaigns in order
to give more brand recognition for their customers. If we look at the dividend yield given by the
company, we observe that the company has been investing in joint ventures and associates. As a
result of this investment they get a certain amount of dividends from these joint ventures. This
adds to the accumulated retained earnings of the organization.

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TESCO PLC
Next acquisition or disposal of subsidiaries is another step taken by the firm in order to
utilize the net cash in other investments. Tesco has been also involved in long term and short
term investments so that whatever proceeds they receive, they can add it in their retained
earnings. These long term and short term investments are the proceeds from sale (Tesco plc,
2014).
Every year the company look forward for the sale of intangible assets. The cash collected
from the sale is then invested by the company. These activities contribute in making a decision
for giving dividends to stakeholders. The company knows that the stakeholders are the main
constituents responsible for good fortunes.

Financing Decisions:
If company has made their accumulated retained earnings it is necessary to pay the
dividends to the share owners. If the company is out of cash, then company usually takes loans
or borrows from its associates. The financing decisions depict the selling of shares to
shareholders. The proceeds obtained from share capital are re-financed in order to yield high
dividend growth. The borrowings of the company also show that company has been giving
dividend payments as a result they make borrowings. Every year company makes repayment of
borrowings, this concludes to their financing activities as well.
The companys financing activity also includes dividends paid to equity owners. This is a
financing decision because the equity owners give their equity to company so that the firm could
utilize the amount in their investments. This is done for achieving maximization in shareholders
equity. It is important to notice companies who do not give dividends to shareholders for a
particular year or two; those firms re-invest their accumulated retained earnings in order to yield

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TESCO PLC
higher growth objectives. The shareholders will always want that the company give them higher
dividends while the managers of the company usually thinks to re-invest the entire earnings
which would be beneficial for the companys growth. This conflict has always existed between
the shareholders and the managers but if we take companys perspective, it is the core objective
of the companys employees that they should always work for the shareholders wealth
maximization.
Conclusion
This report tells regarding the dividend policy of accompany named TESCO PLC. The
ten year history of companys dividend policy has been analysed to look on the payment history.
The dividend growth has been stable for past two years. Furthermore, it seems like that the
company is trying to stabilize the dividend yield. Tesco has been paying scrip dividends as well,
this includes in the selling of additional shares to shareholders. In this way, Tesco doesnt need
to pay out cash to its shareholders.
Dividend per share (DPS) is the amount of dollar each share receives. The generation of
mutual funds pays the dividends and interest income to its shareholders received from portfolio
holdings.
It also shows to calculate the price estimate when cash dividends are awarded. The prices
which are estimated are the interim and final prices. These rates are further analysed by the
organization by keeping the financing and investing activities in regard. In the past years, gradual
growth has been seen but in the companys annual report, it has been stated that the companys
retained earnings were less as compared to the past year but still Tesco managed to give same
dividend yield. Tesco has been using EPS to determine its dividend yield.

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TESCO PLC
Dividends are being given to share owners for the sake of building long term relationship and
trust with the share owner. When dividend prices are set, the stock prices play a role with it. The
shareholder wealth maximization is also dependent on companys retained earnings as well. The
increment in the wealth is done if the common or ordinary stock has been traded on high prices.
Share prices cannot be ignored when dividends are involved. The organizations ten year share
price history has also been compared. The share price pattern has shown many fluctuations. The
reason for such deviations is the inclining inflation rate, competitive market and companys
growth rate. These factors are the important drivers responsible for an inclining or declining
share price. It also depicts the companys decisions on financing and investing activities which
reflects on the dividend payments made to shareholders. These activities reflect on the
responsibility fulfilment of the company towards the shareholder. It is the foremost duty and
responsibility of the company to work hard in order to maximize the share owners wealth
because it is the assets of share owners that companies invest in stocks or make investments so
that the company prosper and achieve high growth figures.

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TESCO PLC
References
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(2014).

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TESCO PLC
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TESCO PLC
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TESCO PLC
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