Group no.

Mr. Prem
(MM2325327)

Mr. Onkar
(MM2325324)
Dividend Policy in Different
Industries Ms. Parnika
(MM2325325)
Financial Management PM & HR

Sri Balaji University, Pune

 FM Project Draft Report
——Title: Dividend Policy in Different Industries: Investigating how dividend policies vary across industries and the factors
that drives these differences.

Dividend policies vary across industries due to a combination of factors such as industry characteristics, regulatory environment, profit
stability, growth opportunities, market expectations, cash flow generation, tax considerations, and competitive dynamics. Companies
within each industry must carefully consider these factors when formulating their dividend policies to balance the interests of
shareholders, regulatory compliance, and long-term growth objectives. [Dividend Payout Ratio = DPS/EPS*100]

It is the management decision, to how much amount is to be retained or how much profits are to be distributed among the shareholders.
The can give dividends in terms of Cash, bonus shares, Interim and Final Dividends. The following aspects affects the Dividend policies.

1. Financial needs of the campany

2. Shareholders expectations

There are two theories of Dividend 1. Walter Model, 2. Gordon’s Model and there are three categories of firm 1. Growth Firm 2. Normal Firm
and 3. Declining firm

 Growth Firm – Pay lower dividends and retain more money for growth.
 Normal Firm (ROI=k) – Dividend payout ratio has no effect on MPS
 Declining firm (r>k) – Maximum Dividend payout policy
Walter's Model: According to the Walter's Model, the dividend policy does not affect the market price of a company's shares or its cost of capital.
Instead, the value of a firm depends on its ability to generate returns from its investments, known as the internal rate of return (IRR).The optimal
dividend policy in the Walter's Model is one that maximizes the market value of the firm by balancing the retention of earnings for investment
opportunities with the payment of dividends to shareholders.
Gordon's Model: In Gordon's Model, the dividend policy directly affects the market price of a company's shares. Increasing dividends or expected
future dividend growth rates will lead to higher stock prices, while decreasing dividends or growth rates will result in lower stock prices. The model
assumes that dividends will grow at a constant rate (g) indefinitely, which is a simplifying assumption. This constant growth rate represents the firm's
ability to generate returns and increase dividends over time.
List of Dividend Paying stocks

Company Name Sector Establishment Age of Company Dividend Policy Stability Dividend Paid
Category
Whirlpool Appliances 1911 113 years Variable, depends on Stable 7.0
business
Wipro IT Services 1945 79 years Variable, depends on Stable $0.012 per share
business
Reliance Industries Conglomerate 1966 58 years Variable, depends on Growing Rs.9.00 per share
business
Microsoft Technology 1975 49 years Consistent Stable $0.75 per share
Infosys IT Services 1981 43 years Consistent Stable 35.50 per share
Amazon E-commerce 1994 30 years No Dividend Policy Growing 0
Oyo Rooms Hospitality 2013 11 years No Dividend Policy Unstable 3.17
Jio Platforms Telecommunications 2019 5 years No Dividend Policy Growing Rs 4400 per
share

Stability
Company Name Sector Establishment Age of Company Dividend Policy
Category
Mc donalds Food Sector 15-May-40 84 Variable, depends on business Well-structured
Dividend Paid
Internal rate of
Year Cost of return on Type of Gordon
s Dividend Paid EPS Equity [K] Investment [R] Walter Model business Model B
2021 1.29 10.04 8.10% 26.10% 5.06 Growing 2.23 0.87
2022 1.67 8.42 8.10% 26.10% 4.73 Growing 2.79 0.8
2023 1.52 11.42 8.10% 26.10% 5.799 Growing 2.72 0.86

Dividend Paid
 Internal rate of
Yea Dividen Cost of Equity Type of
EPS return on Investment Walter Model Gordon Model B
rs d Paid [K] business
[R]
2021 0 3.3 8.08 10.11 0.511025267 Growing 0.408415842 1
2020 0 2.13 8.08 10.11 0.511025267 Growing 0.263613861 1
2019 0 1.173 8.08 10.11 0.181181686 Growing 0.145173267 1

Nike ltd

Dividend Paid
Gordo
Yea Dividend Cost of Equity Internal rate of return on Walter Type of n
rs Paid EPS [K] Investment [R] Model business Model B
2021 1.29 10.04 0.081 0.261 5.06 Growing 2.23 0.87
2022 1.67 8.42 0.081 0.261 4.73 Growing 2.79 0.8
2023 1.92 11.42 0.081 0.261 5.799 Growing 2.72 0.86

Introduction:
Dividend policy, a crucial aspect of corporate finance, refers to the decision-making process by which a company determines the amount and timing of
dividend distributions to its shareholders. It holds significant implications for both the firm and its investors, influencing stock valuation, investor
confidence, and ultimately, shareholder wealth maximization.
Significance of Dividend Policy:
1. Shareholder Wealth Maximization: Dividend policy directly impacts shareholder wealth by influencing the cash flows received by investors.
The decision to distribute dividends affects the attractiveness of the company's stock to income-oriented investors seeking regular income
streams.
2. Market Perception and Confidence: A company's dividend policy can signal its financial health, stability, and future prospects to the market.
Consistent dividend payments or increases may enhance investor confidence and signal management's confidence in the firm's ability to
generate sustained profits.
3. Cost of Capital: Dividend policy can affect the cost of capital for the firm. Investors may perceive high dividend payments as a signal that the
company lacks profitable investment opportunities, potentially increasing the cost of equity capital.
 4. Tax Implications: Dividends are subject to different tax treatments compared to capital gains, which can influence investor preferences for
dividend-paying stocks, particularly in regions with favorable tax policies for dividends.
Variations in Dividend Policy Across Industries:
1. Growth Prospects: Industries exhibit varying levels of growth potential, influencing their dividend policies. High-growth industries, such as
technology or biotechnology, may prioritize reinvesting earnings into research, development, and expansion, leading to lower dividend payouts.
In contrast, mature industries with stable growth trajectories, such as utilities or FMCG (Fast-Moving Consumer Goods), may distribute higher
dividends due to limited reinvestment opportunities.
2. Capital Requirements: The capital-intensive nature of certain industries, such as manufacturing or infrastructure, may necessitate substantial
investments in fixed assets and working capital. Consequently, firms in these sectors may opt for lower dividend payouts to retain earnings for
funding capital expenditures and maintaining financial flexibility.
3. Investor Preferences: The composition of a company's investor base can influence its dividend policy. Income-oriented investors, such as
retirees or pension funds, may favor stocks with consistent and high dividend payouts. Thus, companies operating in industries traditionally
sought after by income-oriented investors, such as telecommunications or utilities, may adopt more generous dividend policies compared to
sectors attracting growth-oriented investors.

Insights and Data:

Data from empirical studies and financial analyses support the significance of dividend policy variations across industries. For instance, research
examining dividend payout ratios across sectors consistently reveals differences attributable to factors like growth prospects, capital requirements, and
investor preferences. Additionally, financial metrics such as dividend yield, dividend coverage ratio, and dividend growth rate provide quantitative
insights into the dividend policies of companies within specific industries.
Overall, understanding the nuances of dividend policy variations across industries is essential for investors, financial analysts, and corporate decision-
makers alike, as it facilitates informed investment decisions and strategic planning tailored to the unique characteristics of each sector.
Walter Model:
 Explanation of the Walter Model and its relevance in determining optimal dividend policy.
 Key components of the Walter Model:
 Retention Ratio (b)
 Return on Investment (r)
 Cost of Equity (k)
  Application of the Walter Model to different industries:
 Stable Industries: Industries with steady growth and mature markets may prefer high dividend payouts since they have limited
investment opportunities. Example: Utilities, FMCG.
 Growth Industries: Industries with high growth potential may opt for lower dividend payouts to retain earnings for reinvestment in
growth opportunities. Example: Technology, Biotechnology.
Gordon's Model:
 Explanation of Gordon's Model and its use in determining the relationship between dividend policy and stock valuation.
 Key components of Gordon's Model:
 Dividend per Share (DPS)
 Required Rate of Return (k)
 Growth Rate (g)
 Application of Gordon's Model to different sectors:
 Mature Industries: Industries with stable cash flows and limited growth opportunities may adopt a high dividend payout ratio to
attract income-oriented investors. Example: Automotive, Tobacco.
 High-Growth Industries: Industries with high growth prospects may choose to reinvest a significant portion of earnings and maintain
a lower dividend payout ratio to support future expansion. Example: Software, Renewable Energy.
Comparison and Analysis:
1. Walter Model vs. Gordon's Model:
Assumptions:
 Walter Model: The Walter Model assumes that the firm can invest all earnings in new projects at a constant rate of return. It suggests that the
dividend policy's impact on the market value of the firm depends on the relationship between the internal rate of return (r) and the cost of
capital (k).
 Gordon's Model: Gordon's Model assumes that dividends grow at a constant rate indefinitely. It suggests that the market value of a firm's
stock is directly related to the dividend yield and the growth rate of dividends. This model assumes that dividends are paid out of earnings, and
the firm's growth rate remains constant.
Implications for Dividend Policy:
  Walter Model: The Walter Model implies that firms should distribute dividends only when the return on new investments (r) is less than the
cost of capital (k). If r > k, retaining earnings to reinvest in profitable projects increases the firm's market value. Thus, the dividend payout ratio
is inversely related to the internal rate of return.
 Gordon's Model: Gordon's Model suggests that the optimal dividend policy depends on the firm's growth rate and required rate of return.
Firms with higher growth rates and lower required rates of return may prefer to reinvest earnings to fuel growth, resulting in a lower dividend
payout ratio. Conversely, firms with lower growth rates and higher required rates of return may distribute more earnings as dividends.
2. Alignment of Dividend Policies with Industry Characteristics:
Growth Trajectories:
 High-Growth Industries: Companies operating in high-growth industries, such as technology or biotechnology, often reinvest a significant
portion of earnings into research, development, and expansion. These firms may follow a low dividend payout ratio to fuel growth and
capitalize on lucrative investment opportunities.
 Mature Industries: In contrast, firms in mature industries with stable growth trajectories, such as utilities or consumer staples, may adopt
higher dividend payout ratios. These companies have fewer growth opportunities and prioritize returning excess cash to shareholders through
dividends.
Risk Profiles:
 Capital-Intensive Industries: Capital-intensive industries, such as manufacturing or infrastructure, typically have higher capital expenditure
requirements and may face greater financial risk. These firms may maintain lower dividend payout ratios to retain earnings for reinvestment
and maintain financial stability.
 Stable Cash Flow Industries: Industries characterized by stable cash flows and predictable earnings, such as utilities or healthcare, may afford
to distribute a larger portion of earnings as dividends due to lower financial risk.
Investor Preferences:
 Income-Oriented Investors: Industries traditionally favored by income-oriented investors, such as telecommunications or real estate
investment trusts (REITs), may adopt more generous dividend policies to attract and retain these investors.
 Growth-Oriented Investors: Conversely, industries attracting growth-oriented investors, such as technology or pharmaceuticals, may
prioritize reinvestment of earnings to drive future growth, resulting in lower dividend payout ratios.
3. Real-World Examples:
 High-Tech Industry: Companies like Alphabet Inc. (Google) and Amazon.com Inc. typically reinvest a significant portion of earnings into
innovation and expansion, resulting in lower dividend payout ratios.
  Utilities Sector: Companies in the utilities sector, such as Duke Energy Corporation or NextEra Energy Inc., often have stable cash flows and
higher dividend payout ratios to appeal to income-oriented investors.
 Consumer Goods Industry: Pro0cter & Gamble Company and Coca-Cola Company are examples of consumer goods companies with mature
markets and consistent dividend payments, reflecting their stable growth trajectories.
Conclusion:
Understanding the contrasts between the Walter Model and Gordon's Model provides insights into the diverse dividend policies adopted across
industries. By aligning dividend policies with growth trajectories, risk profiles, and investor preferences, companies can enhance shareholder value and
maintain competitiveness in their respective sectors. Real-world examples illustrate how firms navigate these considerations to optimize their dividend
policies and achieve strategic objectives.

Conclusion:
In conclusion, the significance of comprehending dividend policy variations across industries cannot be overstated. Throughout this analysis, we have
explored how differences in growth prospects, capital requirements, and investor preferences shape the dividend policies adopted by companies across
various sectors.
Both the Walter Model and Gordon's Model play pivotal roles in guiding dividend policy decisions. The Walter Model's emphasis on the relationship
between internal rate of return and the cost of capital provides a framework for determining optimal dividend payout ratios, especially in industries
where reinvestment opportunities significantly impact shareholder value. Similarly, Gordon's Model offers insights into how dividend yield and growth
rates influence stock valuation, guiding firms in balancing dividend distributions with the need for reinvestment to sustain growth.
It is essential to recognize the dynamic nature of dividend policy, which evolves in response to changes in industry dynamics, market conditions, and
regulatory environments. Companies must continually reassess their dividend policies to align with shifting growth trajectories, risk profiles, and
investor preferences to maximize shareholder value.
In diverse industry contexts, dividend policy serves as a crucial tool for signaling financial health, managing investor expectations, and enhancing
shareholder returns. By understanding and leveraging the insights provided by the Walter Model and Gordon's Model, companies can navigate the
complexities of dividend policy with clarity and purpose, ultimately driving long-term value creation for shareholders.
In conclusion, while dividend policy may vary across industries, its fundamental importance in shaping shareholder value remains unwavering. As
industries continue to evolve, adept management of dividend policy will remain a cornerstone of corporate strategy, ensuring sustained growth and
prosperity in an ever-changing business landscape.