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DIVIDEND POLICY - Essay Example
Finance & Accounting
Pages 3 (753 words)
Dividend is the payments that are given to the shareholders from the profits or reserves of a company. In the case of Associated British food company plc, the shareholders have experienced increasing dividends in the last four years. The management increased both the interim and final dividend throughout the four-year period. …
The management increased both the interim and final dividend throughout the four-year period. In 2007 the company paid an interim dividend of 6.5p which increased to 6.75p in 2008, 6.9p in 2009,7.6p in 2010 and finally 7.9p in 2011. For the case of the final dividend, the amount paid in 2008 was 13.5p, which was increased to 14.1p, 16.2p, 16.85p in 2009,200 and 2011 respectively (Associated British food, 2011). This is attributed to the increasing performance and profitability together with the increase in the performance of the general economy. Since the economy recovered from the recession and the inflation rates reduced, the company realized a reduction in the cost that made it post positive performance. The improving global economic performance also resulted in the increase in the sales turnover and improvement in ABF cash flows (Associated British food, 2011). Since the payments of dividends depends on the availability of cash flows, an increase in the cash inflows would result into an increase in the dividend that can be distributed to the company. Several theories have been developed o elucidate the relevance or irrelevance of dividends decision on the value of a firm (Lease, 2000). Modigliani and Millar dividend irrelevance theory asserts that dividends have no effect on the firms value in a perfect market because dividends are paid out of earnings and therefore whether distributed or not, it does not affect the firms earnings. ...
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