OPEN UNIVERSITY MALAYSIA

FACULTY OF BUSINESS AND

MANAGEMENT

BBPW3203

FINANCIAL MANAGEMENT II

Name: Y.Nirmala Yellamalai

Matric No:811030085690001
NRIC No:811030085690
Telephone No:012-4630565
Email Address:Nirmalay@tnb.com.my
Tutor: MR Ridhwan B Zalay
Learning center:Greenhill Learning Center
Semester:September 2010
Dividend policies are the regulations and guidelines that companies develop and
implement as the means of arranging to make dividend payments to shareholders.
Establishing a specific dividend policy is to the advantage of both the company and the
shareholder. In order to make sure the policy is workable, a company should develop a
viable policy and then run this policy through a number of test scenarios in order to
determine what impact the dividend policy would have on the operation of the business.
In many cases, companies choose to explicitly state the provisions within the dividend
policy.

This is definitely to the advantage of the shareholder, as a well defined policy makes it
much easier to project the amount of payout profits generated for the period under
consideration and thus be able to determine the size of the dividends that will be issued.
When the dividend policy is well defined and documented, it is easy for the shareholder
to obtain a written copy and thus be fully informed as to how the policy works. However,
there are cases where the dividend policy is not so well documented. When this is the
case, investors sometimes base their assumptions on upcoming dividend payments on
what has occurred in the past. While less systematic, it is still possible to project a more
or less accurate estimate of what the dividend payout will actually be.

In cases where the dividend policy is not specifically defined, investors often look at the
history to spot any trends that emerged in the past. If the dividend payments have been
more or less constant for the last several years, and there has been no loss in business
volume, it is reasonable to assume the payments will still be in the same general range as
before. However, if the dividend history is more volatile, the shareholder may attempt to
identify what factors led to the up and down movement of the dividends and determine if
any of those factors are relevant to the current dividend period. In both expressed and
implied dividend policy procedures, it is less common for the dividends to be increased.

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Part of the reason for that is companies tend to look closely at retained earnings and want
to make sure the increased level of earnings will be sustained over the long term.

Once this upward trend is deemed to be more or less permanent, the company may
choose to increase dividends. Far more common is the practice of reducing dividends.
This usually takes place because there is a decrease in the company’s business volume
that is not anticipated to be recaptured in the foreseeable future. At other times, the
decrease may be due to the need to retain more cash on hand for capital expenses. In both
these scenarios, companies tend to notify the shareholders in advance that these factors
exist and a chance in dividends will take place in order to meet the challenge to remain
profitable.

Firms are always searching for an optimal dividend policy, one that strikes a balance
between current dividends and future growth and maximizes the firm’s stock prices.
Dividend policy is needed as erratic dividend policy would mean surprises to market
participants which will result in a drop in the firm’s stock price when there are selling off.
Thus, a well-planned dividend policy could prevent these surprises and preserve or even
enhance stock price. Dividend policy of a firm has implications for various stakeholders
such as investors, managers and lenders. For investors, dividends are not only a means of
regular income, but also an important input in valuation of a firm. As for managers, the
more dividends paid would mean fewer funds available for investment. Lenders may also
have interest in the amount of dividend a firm declares, as more dividends means less
money available for servicing and redemption of their claims.

Nevertheless, the impact of a firm’s dividend policy on its value is an unresolved issue.
Modigliani and Miller (1961) have shown that investors may be indifferent about the
amount of dividend as it has no influence on the value of a firm. Black (1976) found no
convincing explanation of why companies pay cash dividends to their shareholders. The
lack of information on dividend policy of public listed companies in Malaysia provides
the motivation of this study.

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The sector which I took for the assignment is consumer product, trading or services and
also properties. The companies that involve are Poh Kong Holdings Berhad, Proton
Holdings Berhad, Nestle Malaysia Berhad,Hovid Berhad,Mamee Double Decker(M)
Berhad ,Texchem Group Of Companies,Faber Group Berhad, Airasia Berhad, Malaysian
Airlines System Berhad, Tenaga Nasional Berhad, Mah Sing Group,Asian Pac Holdings
Berhad , LBS Bina Group Berhad, Glomac Berhad and also IGB Corporation Berhad.

The first industry that I would like to explain is the consumer product industries. Poh
Kong Holdings has paid dividend for the year 2008 and 2009. Since the end of the
previous financial year, the Company paid a first and final dividend of 1.40 sen single tier
exempt dividend amounting to RM5,744,925 in respect of financial year ended 31 July
2008 on 6 March 2009. At the forthcoming Annual General Meeting, a single tier first
and final dividend of 1.40 sen on 410,351,752 ordinary shares of RM0-50 each
amounting to RM5,744,925 in respect of the current financial year ended 31 July 2009
will be proposed for shareholders’ approval. Even though the company has marked
higher gross profit in year 2008 compare to year 2007. In year 2009 the company has
marked lower gross profit than 2008 but the company has also decided to pay the same
amount of dividend to its shareholder.

This could be categorized as paying constant nominal dividend to its shareholder’s. or it

is also called as regular dividend. However this kind of dividend can be increased or
decreased in earnings reported. The next company that we are going to analyze is Proton
where the company did not pay any dividend in 2008. For the financial year ended 31
March 2008, the Group successfully recorded a profit after tax of RM185 million on the
back of an improved revenue of RM5.6 billion. This marks a significant turnaround to
profitability after tax compared with a loss after tax of RM590 million in the previous
year on the back of revenue of RM4.7 billion. The Group’s cash and cash equivalents as
at 31 March 2008 have also improved significantly to RM1.17 billion.
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In view of the need to ensure that PROTON is viably strengthened and able to achieve
long-term and sustainable growth, the Board of Directors are not recommending the
declaration of any dividends for the financial year ended 31 March 2008. With improved
profitability in the future, the Board expects to once again be able to recommend a
suitable dividend payment. But in the year 2009 the company has paid RM20.6 million to
its shareholder as dividend which contribute RM0.05 each share after tax. The company
has paid an interim dividend with 25% less tax. The company has also recorded higher
profit amount than the year of 2008.

The last company that we are going to analyze in consumer product is Nestle. The
Company has paid dividend in year 2008 and 2009. a final dividend of 106.50 sen per
ordinary share less tax at 26% totaling RM184,809,000 (78.81 sen net per ordinary share)
in respect of the year ended 31 December 2007 on 29 May 2008 a special dividend of
61.19 sen per ordinary share, tax exempt under the single-tier tax system, totaling
RM143,490,550 in respect of the year ended 31 December 2008 on 29 May 2008 and an
interim dividend of 50.00 sen per ordinary share, tax exempt under the single-tier tax
system, totaling RM117,250,000 in respect of the year ended 31 December 2008 on 24
September 2008. The final dividend recommended by the Directors in respect of the year
ended 31 December 2008 is 80.00 sen per ordinary share, tax exempt under the single-tier
tax system, totaling RM187, 600,000. In the year 2009 Since the end of the previous
financial year, the Company paid a final dividend of 80.00 sen per ordinary share, tax
exempt under the single-tier tax system, totaling RM187, 600,000 in respect of the year
ended 31 December 2008 on 28 May 2009 and an interim dividend of 50.00 sen per
ordinary share, tax exempt under the single-tier tax system, totaling RM117, 250,000 in
respect of the year ended 31 December 2009 on 8 October 2009. The final dividend
recommended by the Directors in respect of the year ended 31 December 2009 is 100.00
sen per ordinary share, tax exempt under the single-tier tax system, totaling RM234,

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500,000. The comparison of dividend paid in this company it is higher than the previous
year even though there is slight decrease in year 2009 gross profit.

The next company is Hovid Berhad. In the year 2008 the company has paid interim
dividend RM1.10 per share which total to RM 8,383,000 but in year 2009 the company
did not pay any dividend because the company has experience loss that year due to high
depreciation and also unrealized foreign exchange loss. the last company that we are
going analyze in consumer product is Mamee Double Decker Berhad where the company
has paid interim tax exempt dividend of 5.0 sen gross per share amounting to
RM4,082,072 in year 2008 and in year 2009 has paid interim dividend Rm 0.05 per share
and also a special dividend Rm 0.02 which came to RM 17.51 million in total and also
resulted in 39.5% of dividend payout ratio.

As whole in the consumer product there is certain company that has also came up with
special dividend in particular year and there is also company which experience loss and
could not pay the dividend but as whole among the five companied the profit is much
more better in year 2009 and also the trend seem to be nominal dividend payment only
except for Mamee which came with special dividend in year 2009. So I would say that
the payment trend for dividend in the consumer product is always up and down but there
is also dividend which been paid out by all the companies.

The next sector that we are going to analyze is trading and services. First is Texchem
Group of Companies where the company in the end of the previous financial year, the
Company paid second interim dividend of 4% per share less 25% tax, totaling RM3,
722,977 in respect of the financial year ended 31 December 2008 on 9 January 2009 first
interim dividend of 3% per share less 25% tax, totaling RM2, 792,233 in respect of the
financial year ended 31 December 2009 on 25 August 2009 and second interim dividend
of 2% per share less 25% tax, totaling RM1,861,489 in respect of the financial year ended
31 December 2009 on 19 January 2010.

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The next company is Faber Group Berhad. The company has paid dividend in year 2008
and 2009 dividend in respect of the financial year ended 31 December 2008, of 4% less
25% taxation on 363,001,000 ordinary shares, amounting to a dividend payable of RM10,
890,000 (3.00 sen net per ordinary share).dividend in respect of the financial year ended
31 December 2009, of 6% less 25% taxation on 363,001,000 ordinary shares, amounting
to a dividend payable of RM16, 335,045 (4.50 sen net per ordinary share) this is because
the company has marked increase in their gross profit by 21.8% and that is the reason
why their dividend Payout ratio has also increased to 49.5%.

The next company is Airasia where in year 2009 the company has marked a profit of RM
506,000,000 million where there was increase of 9.71% from the previous year. But the
company did not pay any dividend in year 2008 and 2009 due to the risk they had in rise
of fuel price which was not stable.

The next following company also comes from the same background which is Malaysian
Airline System (MAS). This company has got RM 3,800,000 million profit in year 2009
but could not pay dividend past 2yeras because the company has faced decline which to
said that the whole industry has been affected. The company last paid its dividend to
shareholders in year 2007.

The last company that we are going to see in trading and services sector is Tenaga
Nasional Berhad. In year 2008 dividend in respect of the financial year ended 31 August
2008 of 10.0 sen gross per ordinary share, less income tax at 25%.in 2009 dividend in
respect of the financial year ended 31 August 2009 of 10.0 sen gross per ordinary share,
less income tax at 25% and a tax exempt dividend of 2.3 sen per ordinary share. The
company remained the constant dividend payout ratio even in year 2009 the company has
higher revenue than year 2008.as whole the industry of trading and services does not

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perform paying higher dividend as the consumer product which was higher and had the
dividend payment at least once in between year 2008 and 2009 but in trading services the
airline industry had decline in their sales and Airasia did not pay dividend even they had
revenue due to inconsistence of fuel price.
Last but not least we are going to analyze the dividend payout ratio in the properties
sector listed in share market. Mah Sing Group had rise in their profit in year 2009 where
there was rise 1.2% amounting in RM94, 000,000 million. Gross dividend of 13% on
ordinary shares, less income tax of 25%, amounting to RM33, 782,484 has been paid in
year 2009 but the company did not pay any dividend in year 2008. The next company
that we are looking at is Asian Pac Holding Berhad. In year 2008 the company had profit
of RM 19,188,000 million of profit and in year 2009 the company had rise in profit RM
21,383,000 but there is no dividend had been paid for the 2 years.

The next company is LBS Bina Group Berhad where the company marked gross profit in
year 2008 RM 261,254,000 and in year 2009 the profit had some decrease RM198,
476,000. The company has also not paid any dividend since the year 2006. The next
company that we going to analyze is Glomac Berhad. In year 2008 the dividend of 2 sen
per share tax-exempt together with the interim dividend of 3 sen per share tax exempt, the
total dividend for FY2008 amounts to 5 sen per share tax-exempt.RM 297,200,000
million was paid and in year 2009 the company proposed dividend of 5sen per share and
also with special dividend of 2 sen per share tax exempt.

The last company that we are going to analyze is IGB Corporation Berhad. In year 2008
the company had revenue of RM 668,224,000 and paid dividend 2.5 sen per share tax
exempted and in year 2009 revenue was RM642, 442,000 and also paid the same
dividend like 2008 even though there was decline in their revenue. The company seem to
pay constant amount of dividend even when there is decrease in revenue. As whole the
property sector had 3 companies which was paying dividend and there was 2 companies
which did not pay dividend. The industry is also in moderate payer compare to the
consumer product which had all paying dividend.

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Dividend policy for public listed companies in Malaysia by identifying the financial and
performance factors that influence the dividend policy of Malaysian listed companies. It
also studies the different characteristics of dividend paying companies and non dividend-
paying companies. Besides that, it also tests whether the dividend policy of Malaysian
public listed companies contain information. We find that there are more dividend-paying
companies than non dividend-paying companies in Malaysian public listed companies
over the annual report of year 2008-2009.

The trend becomes upward after 2007 till 2009.This concludes there are different
characteristics between dividend-payer and non-payer for Malaysian public listed
companies. The former are companies that have relative lower growth opportunities,
lower firm risk and lower firm leverage as compared to non dividend-paying companies.
They tend to achieve higher profitability and are bigger, in term of revenue, as compared
to non dividend-paying companies. Profitability, as measured by ROA and ROE, shows
stronger positive linear relationship with dividend yield and dividend payout ratio as
compared to growth opportunities factor and firm size.

With regards to the testing of signaling theory on the determinant of dividend policy for
Malaysian public listed companies, we find that dividend payment has a positive
correlation with the past earnings, little or no correlation with current earning, and is
negatively correlated with future earnings. The finding suggests that dividend policy for
Malaysian public listed companies is influenced by their past performance more than
their current and future performances.

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Assignment reference:

• http://www.oum.my.edu/lms

• http://www.tnb.com.my

• http://www.lbsbina.com.my

• http://www.airasia.com

• http://www.mas.com

• http://www.nestle.com.my

• http://www.faber.com.my

• http://www.pohkong.com.my

• http://www.proton.com.my

• http://www.igb.com.my

• http://www.glomac.com.my

• htthttp://www.mahsing.com.my

• p://www.asianpac.com.my

• http://www.mamee.com.my

• http://www.hovid.com.my

• http://www.texchem.com.my

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