want a single page ppt on dividend policy

Dividend policy 6

Dividend Policy

Student’s Name

Institution Name

Professor’s Name

Course Title

Date

Dividend Policy

Fuyao Glass Industry Group Company has its origins in the People’s Republic of China. Its founder Cho Tak Wong up the company in 1987. The initial company target was replacing glasses in imported cars. The name is a combination of the company’s city headquarters, Fu and ‘yao’ meaning shine. When taking over the company operation, Cho had little experience in running a business. He was relying on previous experience managing a glass factory, business insight, desire to learn, luck, and suitable business principles. In 2015, Fuyao had to schedule an initial public offer to raise capital for investment. The following essay analyses factors that affect dividend policy.

Dividend Policy

A dividend refers to profits that companies offer to shareholders for their investment in the company (Labhane & Mahakud, 2016). Fuyao pursues an unstable dividend policy. Therefore, the payout to shareholders varies each financial. Other dividend policy options available to the company include stable dividend policy and regular policy dividends. When determining the appropriate dividend policy, Fuyao has to consider current laws, shareholder preferences, and the impact of the policy on the IPO.

Factors Influencing Dividend Policy

Regulatory considerations: Fuyao has to ensure that the dividend policy abides with the existing government policies. For instance, the company has to comply with the net profit rule which requires companies to pay dividends only from the current or previous earnings (Triandhari et al., 2017). This rule prevents organizations from paying shareholders from expected returns. Additionally, the capital impairment rule prohibits the company from paying dividends from the capital fund. This rule protects the interests of investors and creditors in case of insolvency. Additionally, laws require companies to consider their asset to liability ratio. Organizations with higher liabilities cannot offer dividends to shareholders because the company is insolvents.

Tax obligations also influence dividend policy. Fuyao shareholders within a high tax bracket could opt against receiving dividends from the company to avoid paying taxes. Conversely, small shareholders within lower tax brackets would prefer cash dividends due to lower tax obligations. Therefore, Fuyao has to create a dividend policy that is suitable for all shareholders.

Future investors: the dividend policy has an impact on the IPO subscription. A suitable policy shows investors that they will receive profits from their investment. Therefore, Fuyao should offer investors high and regular dividend payouts. This policy informs future investors that the company has access to finances and suitable debt (Alaeto, 2018). Therefore, the company can fulfill its dividend obligations while achieving profits. Additionally, expansion plans require a lot of capital hence the reason the company is offering and IPO. Therefore, future investors would be cautious of the organization’s dividend policy to ensure that the company’s expansion plans so not gobble up all funds denying them adequate returns. Therefore, Fuyao has to ensure the dividend policy balances the needs of future investors and expansion plans.

Shareholder preferences: Fuyao has to consider the preferences and expectations of all investors when developing the dividend policy (Huang & Paul, 2017). For instance, young investors will have different demands from retirees. For instance, young investors would be okay with a conservative dividend policy with the hope that they will earn more over their lifetimes. Rich shareholders would also prefer capital gains rather than cash dividends. Fuyao must develop a dividend policy that meets every group’s preferences.

In conclusion, Fuyao Glass Industry Group Company has headquarters in China. In 2015, the company was seeking to finance its expansion into the United States and Russia. When determining the dividend policy to pursue, the organization will consider legal requirements, the impact of the policy on future investors, and the preferences and expectations of shareholders and investors.

References

Alaeto, E. H. (2018). Impact of dividend announcements on stock prices of UK firms listed in London stock exchange. GIS Business, 13(4), 1-10. https://doi.org/10.26643/gis.v13i4.3271

Huang, W., & Paul, D. L. (2017). Institutional holdings, investment opportunities and dividend policy. The Quarterly Review of Economics and Finance, 64, 152-161. https://doi.org/10.1016/j.qref.2016.06.008

Labhane, N. B., & Mahakud, J. (2016). Determinants of dividend policy of Indian companies. Paradigm, 20(1), 36-55. https://doi.org/10.1177/0971890716637698

Triandhari, R., Safuan, S., Syamsudin, M., & Alamsyah, H. (2017). The effect of allocation of dividend of the regional government-owned enterprises and the empowerment efforts on the revenue of regional government: The case of Indonesia. EUROPEAN RESEARCH STUDIES JOURNAL, XX(Issue 4B), 244-258. https://doi.org/10.35808/ersj/888