Analysis of dividend policy
For the analysis of dividend policy, I have selected two companies to concentrate on namely; Caltex Australia and CSL Limited. Caltex Australia Caltex Australia Ltd is an energy Company involved in purchasing, refining, distribution and selling petroleum products in Australia, New Zealand and Singapore it specializes in fuels, lubricants, specialty products and conveniently store goods through the Web of Caltex CSL Limited It is a specialty biotechnology company; the organization undertakes research, manufacturing, marketing and distribution of biotherapies and allied products. The company operates in Australia, New Zealand, Germany, U. K, United States and Switzerland. Dividend Policy Types Regular Dividend Policy This is a policy where investors get dividends at a standard rate. The advantages of stable dividend policy are; • It creates confidence among investors.
• Share prices are stabilized. • The company’s goodwill is promoted. • Investors get regular income. Irregular dividend Here the organization does not pay consistent dividends to investors. This increases the amount of shares and happens mostly when liquid cash is in short supply. However just like cash dividend it doesn’t increase the value of firm and instead makes the share price reduce by the fraction of dividend paid. Just like other companies CSL Limited and Caltex Australia rarely issue their dividends through stock. Factors Affecting Dividend Policy in CSL Limited and Caltex Australia Liquidity A great cash position of the organization means a high ability to pay dividends (Kapadia, 1997) Company’s Financial Condition and Capacity to Borrow If the company is in a dire financial situation may decide to retain earnings to strengthen their equity base.
Therefore issue low or no dividends. n. d. ) On the other hand, Caltex Australia made the following payments. They had a higher dividend amount in 2016 possibly due to high Earnings per share –EPS got in that particular year. CALTEX AUSTRALIA (Dividend payments from 2015-2017 2015 2016 2017 Interim $0. This gives a moderate payout ratio. The payout ratio for CSL Limited is for the fiscal year that ended June 2017=0. 45 The payout ratio for CSL Limited for the quarter ended December 2017 is =0. 30 In investing for the sake of dividends, payout ratio together with the dividend growth rate form a great basis and are important facts to consider. With a payout ratio of 0. 79 Both CSL Limited and Caltex Australia have a low dividend yield meaning that the two companies compensate their investors lowly compared to the market value stock.
Dividend Growth Rate Caltex Australia For the last 12 months, the average dividend per share growth rate for Caltex Australia is -6. 70% per year. Comparatively to the previous years, Caltex Australia had an average dividend per share growth rate of 44. 60% for the previous 3 years. (Guru Focus, n. d. Considering the dividend growth rate for the two companies, though the average growth rate in the last 12 months is low, but computations show an increase in the growth rate in the last 5 years. This means that two companies are worth investing in, when we focus on their dividend growth rate. Conclusion In general, CSL Limited has maintained better and higher dividends than Caltex Australia in the last 3 years meaning they have a better dividend policy than Caltex.
From $10 to earn access
Only on Studyloop