Dividend Policy of Large Publicly-Traded Company: Tesco

1809 Words Apr 30th, 2012 8 Pages
Assignment Title:
Dividend Policy of Large Publicly-Traded Company: TESCO

Kristina Danielyan
Student ID: I075807

CONTENT

1. Introduction……………………………………………………………………Page 2 2. DIVIDEND POLICY………………………………………………………….Page 2 2.1. Dividend Policies: advantages and Disadvantages …………………………Page 3 2.1.1. Fixed Percentage pay-out ratio Policy……………………………………..Page 3 2.1.2. ZERO Dividend Payment Policy …………………………………………..Page 3 2.1.3. Constant or Steadily Increasing Dividend Policy………………………….Page 3 2.2. Dividend Policies in Practice………………………………………………….Page 4 2.3. Effect of Dividend Policy on Shareholder Wealth…………………………..Page 5 3.
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ZERO Dividend Payment Policy: using this policy company paying no dividends to shareholders. Advantages: • Investor gain capital • Cheap and easy to operate • Company can re-invest earnings

Disadvantages: • Unacceptable to majority of investors

2.1.3. Constant or Steadily Increasing Dividend Policy: using this policy company offers constant or steadily increasing dividend in either money terms or in real terms, when a constant or increasing dividend in money terms may lead to declining or increasing (depending on level of inflation or deflation) dividend in real terms.

Advantages: • Acceptable to the majority of Investors

Disadvantages: • Shareholders expect continuous increasing dividends that companies may not be able to afford • It may limit company’s ability to invest

The constant dividend growth model is useful for mature industries, where the projections of dividend growth are likely to be realistic.

The ideal example of the mature company which uses Constant or Steadily increasing dividend policy is TESCO. Company’s Management performed the flexibility
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