dividend policy

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This topic contains 6 replies, has 2 voices, and was last updated by  Abhirup Bhattacharya 4 years, 4 months ago.

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  • #6568
     Pritam Mukherjee 
    Participant

    How to analyze whether a listed company is using its cash wisely or not with reference to its dividend policy? :scratch:

    MBA NMIMS, Mumbai, 2015-17

    #6569
     Abhirup Bhattacharya 
    Participant

    Paying a very high and unusual dividend is normally not good.

    One has to look at quite a few things like the revenue growth and source of funds. Also the sector outlook and the companies future plans.

    Normally high dividend paying companies (or one off unusual dividend) , are those with a high stake of the promoter. Paying dividends also indicate that the company has less opportunities to use the cash.

    Would be better if you give an example… Maybe attach a file. :good:

     

    [P.S. please create proper topic titles and use tags in the threads]

    Founder , Ideasmakemarket.com
    MBA Finance, NMIMS, Mumbai 2011-13

    #6570
     Pritam Mukherjee 
    Participant

    ok..As an example, say- Amazon does not pay any dividend..on the other hand, 3M is having a dividend payout ratio of 50.2 %…Is it justifiable to consider the ratio of 50.2% to be high? If yes, does it mean that the company don’t have a growth potential in near future? Again, Amazon is not paying any dividend, so is it justifiable to buy its shares?  :unsure:

    MBA NMIMS, Mumbai, 2015-17

    #6571
     Abhirup Bhattacharya 
    Participant

    Amazon does not pay dividends because it is a growing stock and also has greater utilization of the liquidity for expansion plans. Buying any equity should not be decided on the basis of the dividend you get, but rather on the risk adjusted return and intrinsic value of the equity and your own risk apetite.

    50.2% is high. Please check if this is the payout ratio it maintains always or is it just a one time. Secondly, did it recognize an extra ordinary profit on a one-off sale? Also the shareholding of the promoters…

    Loving this discussion ! :heart:

    Founder , Ideasmakemarket.com
    MBA Finance, NMIMS, Mumbai 2011-13

    #6611
     Abhirup Bhattacharya 
    Participant

    Awaiting response 🙁

    Founder , Ideasmakemarket.com
    MBA Finance, NMIMS, Mumbai 2011-13

    #6618
     Pritam Mukherjee 
    Participant

    well, let me sum it up and correct me if I am wrong. Amazon does not pay dividends as it invests back the profits for innovation & growth. It’s a growing stock. One should invest in it only if it is for a long time plan. As per data, if someone has invested $1000 at its IPO, it is now valued at over $239,000. On the other hand, The quarterly dividend payout ratio of 3M was 50.2%, whereas the annual was 47% (fisca year 2014). Normally, 3M maintains similar payout ratio annually though the quarterly ratio varies significantly. Thus, with such a high dividend payout ratio, it can be said that 3M is a very matured & stable company. One should invest in it if one is very interested in having short term secured benefits. Moreover, given the technology innovations of 3M, it is expected to continue growing in near future as well. :yahoo: :whistle:

    MBA NMIMS, Mumbai, 2015-17

    #6622
     Abhirup Bhattacharya 
    Participant

    That’s a very good observation ! What about the promoter holdings in Amazon and 3M. Secondly how much is the revenue of 3M from non-core operations?

    :good: Keep it up !

    Founder , Ideasmakemarket.com
    MBA Finance, NMIMS, Mumbai 2011-13

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