Dividends
The
major source of internally generated capital is retained profits.
Once profits have been earned, the factor which most affects the amount of
retentions is the corresponding amount declared and paid out as dividends. A
dividend is the amount given to shareholders as a share of the profits of the
company (Wood and Sangster, 2008). It is important to remember, though, that
the payment of a dividend to a shareholder is discretionary and this must be
balanced against the economic argument that a shareholder is expecting a return
on his or her investment. For this reason we shall consider retention policy
and dividend policy together. The Board of directors of the Cresta Marakanelo
Group is the one that declares the amount of dividends to be paid per share as
illustrated by (Wood & Sangster, 2008). Shareholders cannot come up with
their own amount than that already proposed by the directors. According to
Bruns Jnr, (2005) dividend payout is used to measure the degree at which the
firm is likely to be able to continue to pay dividends provide there is
fluctuation in future income.
An amount of
3.7million was proposed and approved by the Cresta Marakanelo Group for
payments to the ordinary shareholders of the company from June to 31st
December 2009. The Group listed with Botswana stock exchange in 2010 and
started paying dividends to its shareholders in 2011. The Group has experienced
growth in the prices of dividend per share ever since their listing with
Botswana Stock Exchange on June 2010, a dividend of 2 thebe per share payable
to the shareholders was declared for payment at the close of business in 2011.
In 2012 the price for dividends went up to 4 thebe per share which increased by
10% by 2013 take it to 4.4 thebe per share. A 14% increase in dividends per
share in 2014 was recommended which translated to a 5 thebe per share payable
to the shareholders at the close of business in May 2014.
What are the
factors that determine the payment of dividends?
• Profit is one of the factors that can determine the payment of dividends. Amidu, (2007) is of the opinion that there exist negative relationship between dividends payout and profit. The negative relationship means that if an organisation pays dividend it reduces its retained earnings which affects it’s internally generated financing. Cresta Marakanelo Group pays its dividends in cash, therefore it has to ensure that it has sufficient funds at its disposal, since payments of dividend result in the cash outflow of funds from the organisation. The company must make sure that its liquidity position is not affected adversely when paying dividends.
ReplyDelete• Dividend payment may be affected by debt. According to Basse, (2009), organisations that finance their operations with debt worry a lot about their liquidity and this may have a negative impact on dividend payment. When looking at the annual reports of the Cresta Group, they have been acquiring loans finance and purchase some of their projects, but this has not affected their dividend payment policy. This shows that the fact that they continue to pay dividends is that they keep their liquidity ratio as low as possible.
ReplyDeleteInflation is another factor that can lead to a higher pay in dividends as stated by (Basse, 2009) cited by (Elly & Hellen, 2013) that higher prices lead to an increase of the organisation’s revenues, therefore leading to higher corporate earnings and ultimately increase in stock prices. The fact that Cresta Marakanelo Group has always realized growth in the payments of dividends since their listing despite the inflation is a testimony that indeed inflation can have positive impact on dividend payout.
ReplyDeleteDividends payments will go down if the company is having growth in the revenue (Chen and Dhiensiri, 2009). They state that the demand for capital will be high if the company is fast growing. Cresta Marakanelo is fast growing brand, therefore more capital is needed to finance new projects which could have adverse impacts on the dividends payments. Either way the fact that Cresta has been in business for a very long time can work in their favour because they are well positioned with a good reputation. Diamond, (1989) cited by Badu, (2013) supports this statement by saying that an organisation with a good reputation is able to attract cheaper credit to finance expansion and operation venture. In summary age and dividend are related.
ReplyDelete