Financial Management: Dividend Payout Ratio Analysis of Two Companies

This report analyzes the dividend payout ratio of two telecommunication and media sector companies in Malaysia. It includes the calculation, analysis, and evaluation of the dividend payout ratio for the years 2017, 2018, and 2019.

Financial
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Introduction of two companies....................................................................................................1
Calculation of dividend payout ratio of companies.....................................................................2
Analysis of dividend pay out ratio...............................................................................................4
Evaluation of dividend pay out ratio............................................................................................5
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial management refers to planning, controlling, directing and organising all those
financial activities like utilization and procurement of fund which helps entities to accomplish
their goals (Alkaraan, 2018). These activities are performed by applying principles of
management to the financial resources of the enterprises. It ensures adequate and regular fund
supply with the investment safety for organisations. With the aid of financial management
entities plan a sound structure of capital with helps in maintaining a balance between equity
capital and debt.
This report covers detailed introduction about two telecommunication and media sector
companies which belongs to market of Bursa Malaysia. Further, this reports includes
information about calculation, analysis and evaluation dividend payout ratio of these two
companies for the year 2017, 2018, and 2019.
MAIN BODY
Introduction of two companies
For this report Axiata Group Berhand and Digi.com are consider. These two companies
are listed in main market of Bursa Malaysia. Bursa Malaysia, which is earlier known as Kuala
Lumpur stock exchange, is the stock exchange of Malaysia. It is situated in Kuala Lumpur.
Information about these two companies is maintain below-
Axiata Group Berhand, which is usually known as Axiata, is multinational
telecommunication which belongs to Malaysia and it is also conglomerate with big trading
operations in Asia. This company has trade in stock publicly in the main market of Bursa It was
establish in 12 June 1992, as an multinational business division of Telekom Malaysia, but later in
2008, it was separated from Telekom and afterwards it was listed in the same year. It has
become one of the largest mobile operators in Asia with MYR 240 million subscribers and this
number has grown to six times since 2007.This company has a dominant interest in cellular
companies which are in Sri Lanka, Bangladesh, Indonesia, Malaysia, Cambodia as will as in
Singapore and in India. It operates its activities through mobile, infrastructure and other
segments. Its mobile segment pursue from services like pay television transmission, interconnect
services and other data services. Its infrastructure section engages provision of services and
telecommunication infrastructure. Digital services are prosecuted by the other segments.
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Asro Malayasia holding its an Malaysian media and entertainment holding company
which start its functioning as a telvision and diguital satellite services. It is owned by Astro
Holdings Sendirian Berhad which also possess Astro Overseas Limited and its stocks are traded
publicly. They started their business in 1 June1996 and headquartered at Bukit Jalil as well as
they launched there own satellite subscription service. It serves MYR 23 million individuals out
of which 76% are of Malaysian households. They have four areas of their business, namely
publication, digital media, pay television and radio. Astro GO that caters individual screens. That
access over 50000 anytime on demand tittles. Its digital brands host 11.1 million avarage unique
monthly viewers to provide multiple lifestyle portals and entertainment. It offers more than 172
TV channels which includes 40 HD channels. In 1997, company has achieved Multimedia Super
Corridor status. In 2003 year, it has acquired the Celestial Pictures and after that they have
bought radio station which is from India which names Time Highway Radio. In 2019, company
has a total dividend of MYR 313 million MYR for the market value of MYR 4,746 millions. It
have 4,454 number of employees and with this large workforce it is expending its business more
and more. It has engage across MYR 2 million shoppers with the help of its GO Shop commerce
and home shopping business.
Calculation of dividend payout ratio of companies
Dividend: It refers to distribution of profit, which is done by corporates to their
shareholders (Brusca, Gómez‐villegas and Montesinos, 2016). When there is surplus enterprise
can easily pay a portion of that profit to its shareholders or it can re- invest the amount as retain
earning for their future operations. It helps companies to maintain their goodwill along with the
interest of their shareholders.
Dividend Pay out ratio: Dividend pay out ratio refers to that amount of dividend which
is paid to shareholders in relation to the total net income that companies earn or generate
(Bulturbayevich and et.al., 2020) . In other words, it is said to be percentage of net income which
companies dispense among its shareholders in dividend form. For already establish businesses, it
is important to return a pittance to their shareholders as they want to avoid their intervene and it
encourages investors to reinvest in company. In context to both the companies, calculation of
dividend pay out ratio is and its formula is given as under- ( All the figures are in billion)
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Dividend pay out ratio= Dividend paid or Dividend per share
Net Income after taxes Earning per share
In 2017 dividend payout ratio: In this year, Astro Malaysia Holdings Bhd had paid
dividend of MYR 663,775 out of their profits and incurred MYR 616992 income after paying
taxes and whereas Axiata Group Berhand has paid dividend MYR 408,1216 from their earnings
and incurred income of MYR 1162,482 after paying all the relevant taxes Estimation of this
ratio is shown as under from the above data available from the annual report of the companies.
For Astro Malaysia Holdings Bhd, dividend payout ratio = MYR 663775 = 1.072
MYR 616992
For Axiata Group Berhand, dividend pay out ratio= MYR 4081216 = 3.5108
MYR 1162482
In 2018 dividend payout ratio: In this year Astro Malaysia Holdings Bhd has paid
MYR 651, 321 dividend with the help of incomes that they have earned and they also have
incurred an income of MYR 460,824 from their operations. On the other side, Axiata Group
Berhand, has paid dividend of MYR 855,445 which has helped them to get interest of their
holders and suffered a loss of MYR 4974,692 which has created a difficulty for them.
Computation of dividend ratio of this year is as follows-
Dividend payout ratio of Astro Malaysia Holdings Bhd= MYR 651321= 1.41338
MYR 460824
Dividend pay out ratio of Axiata Group Berhand= MYR 855445 = 0.17195
MYR (4974692)
In 2019 dividend payout ratio: In 2019, Astro Malaysia Holdings Bhd has paid
dividend of MYR 573,538 from portion of their earnings and receive an income of MYR
763,976 after paying all the obligations and which has also helps them to retain money and
Axiata Group Berhand, it has paid dividend of MYR 613,669 form this year earnings as this
time they have earn profit and an income of MYR 1815,096 which assist them to come out of
last year loss. Estimation of dividend pay out ratio relating to this year from the above figures is
made underneath-
For Astro Malaysia Holdings Bhd, dividend payout ratio is= MYR 573538 = 0.75072
MYR 763976
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For Axiata Group Berhand, dividend pay out ratio is= MYR 613669 = 0.3380917
MYR 1815096
Analysis of dividend pay out ratio
This ratio is presents in the form of percentage and it can be positive or negative
(Delkhosh and Mousavi, 2016). A zero or low ratio represents that corporates are using all there
earnings or funds to grow there business or it also implies to fact that they don't have enough to
distribute to its shareholders. Whereas, ratio which is some what near or exceeds hundred percent
shows enterprises uses cash reserves to make payment of dividend and it also represents entities
are not reinvesting enough to earn back in business. Analysis of these two companies is done
below-
In the year 2017: Astro Malaysia Holdings Bhd has incurred an income of MYR
616992, in this year which is MYR 545490 less than the income of Axiata Group Berhand as
they earn MYR 1162482 in this year. Astro Malaysia Holdings Bhd has also paid less dividend
as compared to Axiata Group Berhand which represents that the companies has manages to
satisfy their dividend holders irrespective of their low income if comparison is made between
two of them. With the increase in income Axiata Group Berhand have paid more dividend and
their ratio is 3.5108 which is more 2.4388 percentage more then the dividend of Astro Malaysia
Holdings Bhd.
In the year 2018: Astro Malaysia Holdings Bhd has paid dividend of MYR 651321
which more than the last year and because of this they are able to pay more amount as dividend.
Whereas, Axiata Group Berhand has suffered a loss of MYR 4974692 which states that they
have completely reduce their level of income but still they have manages to pay dividend.
Besides this, they are not in position of keeping retained earnings for future working. In this
years Axiata Group Berhand has incurred a loss which shows that they will not be able to kept
retained earnings but they manages to pay dividend. In 2018, Astro Malaysia Holdings Bhd has
manages to pay 1.24193 percent more divided with the comparison with Axiata Group Berhand
as this time the company has faced the situation of loss.
In the year 2019: In this year, Astro Malaysia Holdings Bhd has earned MYR 1051120
more profit then compare to which has made easy for them to sustain in the market and they are
able to pay dividend amount. Astro Malaysia Holdings Bhd on the other hand, has paid dividend
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of MYR 613669 which is less as compared to the last year and this time they have shown an
improvement in their performance as they have overcome their losses. This year Astro Malaysia
Holdings Bhd has paid 0.4126 percentage more dividend as compared to the other company.
From the above information it can be analysed that both the companies have managed to
pay their dividend despite the fact that one entity has suffered a loss in the year 2018. They have
earned decent amount of profits which can be kept as retain earning by them for the upcoming
years.
Evaluation of dividend pay out ratio
There are many factors like corporate,legal and institutional which influence the
decisions of dividend of the various entities and decisions also includes profitability and growth
of enterprises liquidity position, options of financial concerns relating to control of management,
cost, presence of external restrictions as well as influence of cash flow (Ferguson and Morton-
Huddleston, 2016). In relation to Astro Malaysia Holdings Bhd and Axiata Group Berhand,
these factors are explained as under-
Growth and Profitability: The factor of sustainability in very important for the organisations
and it totally depend on how much growth, they have attain from all of there past operations.
Profitability influence the dividend decisions as more profit, leads to more dividend for
shareholders and it also indicates if firm does not have more profit they will not be able to issue
additional equity (Mitchell, 2017). In this regard both companies, should focus on making more
profit which will increase their market value of shares and will sustain in market for long terms .
In this regard theories are explain underneath-
The Gordan growth model- This model studies the main cause of dividend growth. For
this it is assumed that company neither makes drastic trading breakthrough or suffers misfortune
(Nkundabanyanga and et.al., 2017). In this both conditions, growth will rise by doing something
mores for the same operations. This could happen by expanding number of factories and besides
this expansion can only take place when there are earning which can be retained.
Obligations of debt: If an organisation incurred massive indebtedness, will be not in position to
high amount of dividend to its shareholders. For these companies, focus should on retention of
their earnings in order to reduce their debts but on the other side entities with no debt obligations
can afford high dividend rates. Astro Malaysia Holdings Bhd and Axiata Group Berhand in this
context, they should make such dividend policy where they can pay to shareholders and can
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retain the incomes for future dividend payouts. In this regard theory of dividend is discussed
below-
Dividend valuation model- This theory says that companies can sustain with the
expectation of future dividends. Shareholders acquire shares by giving present value of the
shares and they think, if current value of future dividends does not match with the current price
of share, they will not pay the amount.
Alternative options for financing and cost: The firms ability to raise money from external
sources will directly bear the level of paid dividend of shareholders. A company has a easy
access to capital market which makes it easy for them to raise funds from various alternative.
These alternatives will set the latitude for the policies which are related to dividend and in this
manner they can heavily rely on retention of earnings which will act as source of financing. The
things that will work against this approach is that payment of dividends are financing cost and
they issue expenses. Both Astro Malaysia Holdings Bhd and Axiata Group Berhand, should
consider many factors before searching for alternatives for financing alternatives as both have
to set low levels for dividend which will decrease interest of their shareholders. In this reference
theory is explained underneath-
Modigliani and Millers dividend irrelevancy theory: This theory implies that patterns
of dividend will not effect the value of shares(Prawitz and Cohart, 2016). It suggested that if
divided is reduce now then it will increase the scope of extra retained earnings which encourage
reinvestments, that will grow dividends of future as well as earnings of future. Receipts of
dividends are comparatively lower now but this will exactly offset by the hike in present worth
of future dividends .
Factors that can encourage company managers of Astro Malaysia Holdings Bhd and Axiata
Group Berhand to make decisions in favour of shareholders are-
Increase in profit by earning more will encourage shareholders to invest more in the
company as they have solid stock value. Managers should will not force them to sacrifice long
tern development. Managers should set goals relating to shareholders that will provide them
security. Managers should arrange quarterly and annual meetings to get feed back and voice
concerns finance. All of these factors will encourage company managers of Astro Malaysia
Holdings Bhd and Axiata Group Berhand to make decisions in favour of shareholders.
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CONCLUSION
From the above report, it can be consider that divided is paid by the corporates to their
shareholders out of their net earnings and if they keep is as retained earning then they will not
pay this amount to their shareholders which through which they will not have sufficient amount
to cover their expenses and pay back to their shareholders. Dividend payout ratio display
information about how much company has paid to their shareholders and it is represents in
percentage. If that percentage is near to 100 than it shows it has fully paid to its shareholders this
also shows that company has left with nothing to invest in future businesses. and it does not
exceed the figure hundred than it shows that company has hold its earning to invest in future
activities. Payout ratio is useful in visualising the sustainability of dividends. Entities are
extremely eager to cut dividends in order to drive down the prices of stock which represents poor
management abilities. It is also matters in long term trends as steadily ratio display mature and
healthy business but on the other side the spiking or rising shows the sustainability. It is widely
used by industry sector as it becomes easy for them to evaluate their performances by
comparing with the other industries. It could be said that investment made in real estate
partnership enjoy exemptions of tax which are special and partnership related to master limited
tends to have high dividend payout ratio. Factors like growth and profitability, obligations of
debt and alternative options for financing and cost impact the dividend decisions of the
organisation. Theories like the gordan growth model studies refers to the main cause of dividend
growth, dividend valuation model which says that entities can survive with the expectation of
future dividends, modigliani and millers dividend irrelevancy theories which states that
structures of dividend will not consequence the worth of shares. All these theories helps in
deriving accurate amount of dividend depending on various factors. Increase in profit which
assure the shareholders interest with the continuous hard work, investment from shareholders,
their feedbacks which is an important aspects for the enterprises in order to get more relevant
suggestions for their betterment, and hike in value of stock implies shareholders are interest in
investing more in the business concerns all are some factors which promote managers to make
decisions in favour of their companies shareholders.
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REFERENCES
Books and Journals
Alkaraan, F., 2018. Public financial management reform: an ongoing journey towards good
governance. Journal of Financial Reporting and Accounting.
Brusca, I., Gómez‐villegas, M. and Montesinos, V., 2016. Public financial management reforms:
The role of IPSAS in Latin‐America. Public Administration and Development. 36(1).
pp.51-64.
Bulturbayevich, M. B. and et.al., 2020. Modern features of financial management in small
businesses. International Engineering Journal For Research & Development. 5(4).
pp.5-5.
Delkhosh, M. and Mousavi, H., 2016. Strategic financial management review on the financial
success of an organization. Mediterranean Journal of Social Sciences. 7(2 S2). p.30.
Ferguson, A. and Morton-Huddleston, W., 2016. Recruiting and retaining the next generation of
financial management professionals. The Journal of Government Financial
Management. 65(2). p.46.
Mitchell, G. E., 2017. Fiscal leanness and fiscal responsiveness: Exploring the normative limits
of strategic nonprofit financial management. Administration & Society. 49(9). pp.1272-
1296.
Nkundabanyanga, S. K. and et.al., 2017. The impact of financial management practices and
competitive advantage on the loan performance of MFIs. International Journal of Social
Economics.
Prawitz, A. D. and Cohart, J., 2016. Financial management competency, financial resources,
locus of control, and financial wellness. Journal of Financial Counseling and Planning.
27(2). pp.142-157.
Sazonov, S. and et.al., 2017. Theory and methodology of the financial management of the
regional supporting university. J. Advanced Res. L. & Econ.. 8. p.211.
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