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Dividend Policy
SQUARE TEXTILES LTD.
Company Overview
• The name of the company is Square Textiles Ltd. It
incorporated as a public limited company in the year of
1994
FV Per share 10 10 10 10 10
DPS 3.2 3 3 3 3
40%
2004, it was increasing for the 2002 2003 2004 2005 2006
6.00%
4.84%
4.00%
2.00%
0.00%
Year
2002 2003 2004 2005 2006
ROE, RR & g
80%
RR ROE g
60%
40%
20%
0% Year
2002 2003 2004 2005 2006
20.00%
15.00%
10.00%
5.00%
0.00%
2002 2003 2004 2005 2006 Year
• The firm uses the residual dividend model to Yr. DPS (Cash)
set the long run target payout ratio at a level
that will permit the firm to meet its equity 2000 10.00
requirements with retained earning.
2001 3.00
• Hence, DPS in 2000 was tk.10, but in 2001
it went down to tk.03 only, again it raised to 2002 3.20
tk.03.20 in 2002 and subsequently it went 2003 3.00
down to tk.03 in 2003 and henceforth, it is
tk.03. 2004 3.00
• No wonder that it could decrease or 2005 3.00
increase again if the profit changes.
2006 3.00
Besides, no stock dividend was paid from
year 2000-2002 as shown in table no.01.
Proportion of Earnings Distribution
• On the other hand, the company maintains
fixed cash dividend in the last four years
(tk.3/share) and the extent of stock Yr. Dividend Dividend
dividend varied significantly (10:1 in 2003- (stock Declared
04, 8:1 in 2005, 100:15 in 2006) over %
those years, indicating the maintenance of 2000 - 10
optimal dividend policy and usage of
residual dividend model. 2001 - 30
• If a firm use residual dividend model, it
2002 - 32
pays dividends only if more earnings are
available than are needed to support the 2003 10:1 40
optimal capital budget.
2004 10:1 40
2006 100:15 45
Proportion of Earnings Distribution
Pay-out Ratio Pay-out
50%
40%
30%
20%
10%
0% Year
2002 2003 2004 2005 2006
• The graph depicts that from the year 2002 to 2003, the
payout ratio was increased and after that with a slight
decrease in 2004, it was increasing for the rest of the
years.
•Comparison of Earning, Cash flow, and Dividend
•This was the critical situation that the company had to face to keep the target
payout ratio. From the the year 2004 to 2006, the DPS was relatively stable
while the EPS was increasing
Dividend Pattern of STL
Taka Earnings, CashFlows, &Dividends
25
15
10
0 Year
2002 2003 2004 2005 2006
Stock Price
150
100
OPTIMAL PAYOUT 50
0
32% 40% 40% 42.50% 45%
Po
RATIO
Payout Ratio
Ks
20.00%
10.00% Ks
% % % % 5.00%
0.00%
32% 40% 40% 42.50% 45%
%
%
%
%
0
32
40
40
45
.5
42
11.4
40
2004 138.3 2.17 9.23
40 GrowthRate
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%