AF4320 Corporate Finance Semester 1, 2013-2014 Individual Written Assignment
This essay will trace the dividend payouts of three public companies in the last consecutive fifteen years and find the key factors which affect a company’s payout policy. The three public companies, namely Hutchison Whampoa Limited (HWL), CLP Holdings Limited (CLP), and The Bank of East Asia (BEA), are all the constituent stocks of the Hang Seng Index.
HWL Dividend Payout History over Last Fifteen Years
A glance at the figure provided reveals changes in HWL’s dividend payout in the last consecutive fifteen years. During this period, HWL’s dividends per share (DPS) climbed steadily from $1.16 ...view middle of the document...
Considering the scope and nature of the business, a long-term target level of dividend is of great importance in maintaining the HWL’s recognition and also fulfilling the
company’s commitment. Thus it is reasonable to expect HWL to alter dividend payout levels conservatively. In fact, except the increase in 1999, all three other increases in dividend payouts accomplished with higher average EPS (as shown in Figure 1.2). It is very likely that HWL generally set dividends at a level it expect to be able to maintain based on the company’s earning prospects. CLP Dividend Payout History over Last Fifteen Years
Given is a figure illustrating CLP’s dividend payouts from 1998 to 2012. Except for 2002, the company’s dividends grew continuously from $1.81 to $2.57 within the period. This change is steady, given that the standard deviation of DPS is only 0.28. Dividend Policy
CLP is committed to creating value for its shareholders in the form of dividends and share price appreciation. The company distributes cash dividends four times throughout every single year. The virtually constant increase in payout level, together with the low standard deviation of DPS (0.28), implies that CLP is acting comply with its articulated policy. Associated Factors Discussion Unlike HWL which decides to raise the payout level only if it seems that the company would anticipate higher EPS continually in the future, CLP increases dividends without much consideration on its earnings. As shown in the figure, even though the EPS in recent two years drops, the DPS still increases slightly. Considering that CLP is an energy company that provides daily utilities, its profitability is very likely to maintain stable whatever the economic condition is (the standard deviation of EPS for CLP is only 0.72, with a low coefficient at only 20.23%). Thus the company has the ability to smooth dividend payouts. Figure 2.3 Source : Google Finance, 2013
In addition, since the dividend serves as an important factor determining the share price, CLP may choose to pay more dividends when it tends to raise its share price. A historical data on stock price of CLP clearly demonstrates that, as DPS rose from $1.88 to $2.48, the stock price climbed from around $32 up to over $50. From 2007 to 2010, when DPS was restricted to $2.48, the share price did not change much, excluding a considerable increase and a following plunge during 2008, which was largely due to the outbreak of global financial crisis. As the DPS resumed the slight increase since 2011, the share price began to rise to over $60. It can be concluded that such payout policy may be explained by the company’s commitment to its shareholders and the dividend serves as signal on the company’s future prospects. BEA Dividend Payout History over Last Fifteen Years