Historical Performance and Dividend Policy of CapitaLand Limited

This report analyzes the historical performance of CapitaLand Limited, a Singapore-based real estate organization, and its dividend policy. It includes an evaluation of revenue and profit margins, non-financial factors, and the impact of dividend payout. The report also provides a forecast of revenue and dividend payout for the next financial year.

Running head: DIVIDEND STRATEGY
Dividend Strategy
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Executive Summary:
The current report aims to deal with the historical performance of CapitaLand Limited,
which is listed on the Singapore Stock Exchange. It is a Singapore-based real estate organisation
established due to the merger of Pidemco Land and DBS Land in November 2000. The
organisation has stable historical performance, which is validated by positive correlation with the
Singapore stock exchange. The company adopts the regular dividend policy, as it would help in
strengthening the confidence of the shareholders. Based on these factors, the estimations of the
revenues and dividend payouts of the organisation have been made.

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Table of Contents
Assignment 1:..................................................................................................................................3
Introduction:................................................................................................................................3
1. Analysis of the historical performance of CapitaLand Limited:.............................................3
2. Discussion of the dividend policy of CapitaLand Limited:.....................................................7
3. Forecasted revenue of the next financial year of CapitaLand Limited:...................................9
4. Forecast of the next year’s dividend payout:...........................................................................9
5. Credit rating:............................................................................................................................9
Conclusion:..................................................................................................................................9
Assignment 2:................................................................................................................................11
Reflection:..................................................................................................................................11
References:....................................................................................................................................13

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Assignment 1:
Introduction:
The current report aims to deal with the historical performance of CapitaLand Limited,
which is listed on the Singapore Stock Exchange. It is a Singapore-based real estate organisation
established due to the merger of Pidemco Land and DBS Land in November 2000 (CapitaLand,
2018). The organisation is involved in leveraging its asset base, developing strategies for active
capital management along with extensive operational abilities and market network for
formulating greater quality real estate products and services. Therefore, the first section of the
report would aim to provide a critical discussion of the historical performance of CapitaLand
Limited for the past three years. The second segment would lay stress on highlighting the
dividend policy of the organisation in the Singaporean market. The third part would focus on
forecasting the revenue of the upcoming financial year. In a similar fashion, the dividend payout
of the organisation would be estimated for the next financial year in the context of CapitaLand
Limited.
1. Analysis of the historical performance of CapitaLand Limited:
In order to evaluate the historical performance of CapitaLand Limited for the past three
years, it is contrasted with the share performance of Singapore Stock Exchange, which is briefly
depicted in the form of a figure as follows:
01/01/2015
01/05/2015
01/09/2015
01/01/2016
01/05/2016
01/09/2016
01/01/2017
01/05/2017
01/09/2017
0
2
4
6
8
10
12
14
Monthly share prices of Singapore
Stock Exchange and CapitaLand
Limited from 2015-2017
SGX share price
CapitaLand Limited share
price

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Figure 1: Monthly share price trend of Singapore Stock Exchange and CapitaLand
Limited for the years 2015-2017
(Source: Sg.finance.yahoo.com, 2018)
According to the above figure, it could be found out that the share prices of both
CapitaLand Limited and the index have not shown adequate fluctuations in the three-year period.
The share price of CapitaLand Limited has varied between 2.98 SGD to 3.84 SGD over the
stated period. On the other hand, the share price of Singapore Stock Exchange has varied
between 7.08 SGD to 8.52 SGD over this period. Along with this, positive correlation could be
observed between the share price of the organisation and the index, which indicates that a rise or
fall in the index stock price could result in increase or decrease in the individual stock price as
well. Hence, it could be stated that the organisation has maintained a stable position in the stock
market possibly due to positive brand image.
Three key factors for financial analysis:
The three main factors needed for carrying out the financial analysis of CapitaLand
Limited are depicted in the form of the following table:
Particulars 2015 2016 2017
Revenue
4,553.8
5
5,252.3
3
4,609.7
8
Growth over prior
year 15.34% -12.23%
Net income margin 23.40% 22.70% 33.60%
Return on equity 6.15% 6.60% 8.50%
Table 1: Values of the three main financial factors of CapitaLand Limited for the years
2015-2017

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(Source: CapitaLand, 2018)
Based on the above table, it could be cited that there is positive growth in revenue by
15.34% in 2016 in contrast to 2015. However, decline in revenue by 12.23% could be observed
in 2017 because of the minimised completion and handover of units from the development
projects in China. This is mitigated partially with the help of rental contribution from the newly
opened and acquired properties along with revenue consolidation from CapitaLand Mall Trust,
RCS Trust and CapitaLand Retail China Trust (Jacob & Michaely, 2017).
Despite the slight decline in net income margin in 2016, significant increase could be
observed in 2017. This is because the organisation has managed to sell 1,409 residential houses
in Vietnam for achieving record sales of S$459.6 million, which is 63% greater in contrast to
S$282.1 million in 2016. In addition, another reason behind such increasing net income margin
is the sale of 407 residential houses in Singapore in 2017 valued at S$1,479 million in contrast to
S$1,415 million in 2016.
Return on equity helps in measuring the profit of CapitaLand in relation to its
shareholders’ equity (Al-Najjar & Kilincarslan, 2016). The increase in this ratio could be
observed over the years and return on equity of 8.50% denotes S$0.085 returned on every S$1
invested. The investors expanding their portfolio might intend to increase their return in the
diversified real estate activities sector by selecting the stock providing greater returns (Athari,
Adaoglu & Bektas, 2016).
Three key factors for non-financial analysis:
The first key factor that needs to be considered in conducting the non-financial analysis
of CapitaLand Limited is the industry in which it operates. It has already been identified that the
organisation operates in the real estate sector of Singapore and other global markets. The next
factor that comes into play is to estimate the performance of the sector in the coming year. As
commented by He et al., (2017), the real estate market of Singapore has been the backbone of the
economy of the nation despite the fluctuations over the years. In addition, the researchers have
stated that the foreigners have made property purchases in Singapore in the first three quarters of
2017, which was 20% more in contrast to 2016. However, as argued by Koo, Ramalingegowda
& Yu (2017), the property market in Singapore has been passing through recovery phase due to

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the effect of en bloc sales. The prices of the properties are reduced at the end of 2017 so that the
sales volume could go up between 5% and 10% in 2018. The estimations are made on the
existing trend of collective sales, which have surpassed S$3 billion in the initial eight months of
2017. Finally, it is expected that the mid and high-end properties would be bought more in
contrast to the other real estate categories in Singapore. 12,000 new properties are expected to be
formed and they would be sold in 2018.
The third factor is the competition in the industry and the main competitors include
Mitsui Fudosan Corporation, Cheung Kong Holdings and Yeo Hiap Seng Limited. These
organisations have strong market popularity and hence, if they minimise their property prices, it
would have direct impact on the revenue base of CapitaLand Limited. This is because the
potential customers would switch over to these organisations for purchasing properties at lower
prices (Baker & Jabbouri, 2016).
Impact of dividend payout on the identified factors:
The impact of dividend payout would have no impact on the revenue and profit margins,
since dividends are paid from retained earnings and not out of the profit made (Huang et al.,
2015). On the other hand, when dividends are paid, the amount is deducted directly from retained
earnings. In addition, dividend payout minimises the cash balance, which is an asset account
reduced by the total dividend amount (Jabbouri, 2016). In case of the non-financial factors, if
CapitaLand Limited increases its dividend payout, it would have direct effect on the other
competitors in the industry, as they would be forced to increase their dividend payments to the
shareholders as well.
2. Discussion of the dividend policy of CapitaLand Limited:
Dividend policy adopted by the organisation:
As observed from the annual report of CapitaLand, the annual dividend per share of the
organisation was S$0.09 in 2015 and it has increased to S$0.10 in 2016. The increase is inherent
further to S$0.12 in 2017. Special dividend is not taken into consideration and the organisation
has not incurred any special dividend during the years. Hence, CapitaLand Limited adopts
regular dividend policy, since it provides dividend at the usual rate (Kajola, Adewum & Oworu,
2015). This is because most of the shareholders in the organisation are retired individuals aiming

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to obtain regular income. This type of dividend policy is maintained, as the organisation has
regular earnings from sale of properties. The reasons that the organisation adopted this dividend
policy and the managers would maintain the same are enumerated as follows:
 Confidence level could be developed within the minds of the shareholders
 The market price of the shares could be stabilised (Travlos, Trigeorgis & Vafeas, 2015)
 The goodwill of CapitaLand Limited could be marinated
 Regular income could be provided to the shareholders (Kajola, Desu & Agbanike, 2015)
Modigliani-Miller (MM) theory:
According to this theory, the investors do not pay considerable attention to the dividend
history of an organisation and hence, dividends are not relevant in conducting the valuation of
the organisation. Instead, it states that earnings only have direct impact on the valuation of the
organisation and it is the direct output of the investment policy and future prospects of the
organisation (Michaely & Qian, 2016). In this case, as CapitaLand Limited has regular earnings
based on which it frames its dividend policy, this theory is significant. However, this theory
assumes that there is no variation between internal and external financing and taxes are not
present. These conditions are not realistic in the capital markets.
Signalling hypothesis:
This hypothesis states that at the time an organisation declares an increase in dividend
payout, it indicates positive future prospects of the business. The rise in dividend payout of the
organisation primarily estimates positive future stock performance and vice-versa. In case of
CapitaLand Limited, the dividend payout per share of the organisation has increased over the
years and hence, its dividend policy could be linked to this theory. However, this theory could
sometimes provide misleading information to the investors, if investigation is carried out to
assess current dividends as indicators of future earnings (Mori & Ikeda, 2015).
Clientele effect:
The clientele effect determines the movement of the share price of an organisation in
accordance with the goals and demands of the investors in relation to divided, tax or any change
in other policy. The theory assumes that particular investors are drawn towards various company

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policies and if there is any change in such policies, the investors would adjust accordingly
(Renneboog & Szilagyi, 2015). Due to this, there would be significant fluctuations in the share
price of the organisation. In case of CapitaLand Limited, the share price of the organisation has
not fluctuated significantly over the years, for which the shareholders need not have to adjust
with the new dividend or any other policy.
3. Forecasted revenue of the next financial year of CapitaLand Limited:
Table 1: Forecasted revenue of Capita Land Limited for the years 2018 and 2019
(Source: Sg.finance.yahoo.com, 2018)
As evaluated above, the property prices are expected to fall between 5% and 10% in
order to increase the revenue margin of the Singapore real estate sector. Hence, for forecasting
the revenue of CapitaLand Limited, the average of the estimated values in both the years is used
as the bases for projecting revenues of the organisation. In addition, it is expected that the
customers would purchase properties and residential houses at lower prices. The prices of the
properties are reduced at the end of 2017 so that the sales volume could go up between 5% and
10% in 2018. The estimations are made on the existing trend of collective sales, which have
surpassed S$3 billion in the initial eight months of 2017. Finally, it is expected that the mid and
high-end properties would be bought more in contrast to the other real estate categories in
Singapore. 12,000 new properties are expected to be formed and they would be sold in 2018. As
a result, the revenue is expected to increase by 3% to 5% in 2018 and 6% to 10% in 2019
(Quotes.morningstar.com, 2018).
4. Forecast of the next year’s dividend payout:
In order to forecast the dividend payout of the organisation, the three-year dividend
growth rate of the Singapore real estate sector is taken into account, which is 19% (Reuters.com,
2018). Hence, the dividend payout of the organisation in 2018 would be S$0.14 and in 2019, it
would be S$0.17. This amount is identical to the amount offered on the part of the market

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average and the organisations from Singapore. The rise in dividend payout of the organisation
primarily estimates positive future stock performance and vice-versa. In case of CapitaLand
Limited, the dividend payout per share of the organisation has increased over the years and thus,
the regular dividend policy would raise the dividend payout.
5. Credit rating:
According to Moody’s credit rating agency, the credit rating of CapitaLand Limited has
declined from A3 to Baa2. Even though the organisation has improved its overall quality of asset
portfolio, the credit rating has declined due to the acquisition of a new office. This would be
funded bank borrowings of S$1.1 billion and cash in hand of S$340 billion. As a result, it would
minimise the return on investment of the shareholders.
Conclusion:
Based on the above discussion, it could be found out that Capita Land Limited is a
Singapore-based real estate organisation established due to the merger of Pidemco Land and
DBS Land in November 2000. The organisation has stable historical performance, which is
validated by positive correlation with the Singapore stock exchange. The company adopts the
regular dividend policy, as it would help in strengthening the confidence of the shareholders.
Based on these factors, the estimations of the revenues and dividend payouts of the organisation
have been made.

10DIVIDEND STRATEGY
Assignment 2:
Reflection:
After critical evaluation of the above completed section, I have gathered adequate
knowledge about the dividend policies and strategies that the modern business organisations
follow in the current era to sustain competitive advantage in the operating markets. More
specifically, this report has focused on the real estate industry of Singapore, in which CapitaLand
Limited has been selected as the organisation. I have found out that the organisation is involved
in leveraging its asset base, developing strategies for active capital management along with
extensive operational abilities and market network for formulating greater quality real estate
products and services.
As a member of the group, I have been assigned to evaluate the stock performance of the
organisation over the three-year period of CapitaLand Limited. I have assessed that that the share
prices of both CapitaLand Limited and the index have not shown adequate fluctuations in the
three-year period. Along with this, positive correlation could be observed between the share
price of the organisation and the index, which indicates that a rise or fall in the index stock price
could result in increase or decrease in the individual stock price as well. Hence, it could be stated
that the organisation has maintained a stable position in the stock market possibly due to positive
brand image.
I have been assigned to determine the key factors that affect the future performance of the
chosen organisation in the market of Singapore. These factors include both financial and non-
financial factors. After considerable research, I have found out that the real estate market of
Singapore has been the backbone of the economy of the nation despite the fluctuations over the
years. In addition, the foreigners have made property purchases in Singapore in the first three
quarters of 2017, which was 20% more in contrast to 2016.
Based on my information collected, the other team members of the group have estimated
the revenue and dividend payout of the organisation, while highlighting the dividend policy
followed on the part of the organisation. I gained an understanding that dividend policy plays an
immense role for the shareholders of an organisation to undertake their investment decisions. I

11DIVIDEND STRATEGY
understand that CapitaLand Limited adopts regular dividend policy, since it provides dividend at
the usual rate. This is because most of the shareholders in the organisation are retired individuals
aiming to obtain regular income. This type of dividend policy is maintained, as the organisation
has regular earnings from sale of properties.
Thus, this assignment has helped in boosting my knowledge regarding the corporate
dividend policy and strategy that an organisation follows in order to sustain competitive
advantage in the market. I have obtained clear insight that the shareholders play a significant role
in increasing the market value of the organisation. Hence, in order to satisfy their needs, dividend
payouts are necessary. This knowledge would help me in my future profession, since I would
have thorough knowledge regarding the type of dividend policy and strategy that the
organisation undertakes for meeting the needs of its shareholders.

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