Dividend Decisions^343
Dividend Policies in Practice
To learn about the dividend policies of business firms, the author asked the chief finance
executives of 20 large-sized business undertakings, representing a wide cross-section
of industries, the following question: What is your dividend policy? The responses obtained
are reproduced below (the lengthier ones have been paraphrased).
Nature of Industry Response
Electrical "We try to maintain a ten per cent dividend rate. That is what the
government expects from us."
Chemicals "Dividend policy is concerned primarily with the welfare of
shareholders. When earnings position permits we declare good
dividends. Otherwise, we don't. We don't think of accumulating
surplus and declaring bonus shares."
Tea "In the last ten years the parent company has not been insisting on
any dividend rate. Whatever has been paid out is accepted. Our
payout has been 30 to 50 per cent."
Fertiliser "Though we are a joint sector project, our dividend policy is
governed by commercial considerations. Of course, we are a bit
conservative."
Toothpaste "We believe in rewarding shareholders generously - both in dividends
and bonus shares. Our payout has been very high.
Aluminium 'We pay dividend whenever we can afford it. When performance
or liquidity unsatisfactory we skip dividend to preserve strength
our financial strength."
Chemical "Our dividend policy is to pay a fixed rate of dividend and issue
bonus shares when we are eligible to. The purpose is to ensure
that shareholders retain shares to enjoy capital gains."
Automobile "We like to maintain a dividend rate of 15 per cent. This seems to
be a fair return to investors."
Shipping "In the past when the going was good, we paid good dividends and
issued bonus shares periodically. The last few years were rough.
We had to suspend dividend for some time. We are now recovering.
We will try to follow the past policies, provided business conditions
are good."
Leasing "We would like to declare as high a dividend as we can. If share
prices rise due to that, we can raise relatively easily more funds by
issuing convertible debentures."