Thesis on Dividend Policy of Pharmaceuticals and Food Industries

This report focuses the pharmaceuticals and food sector’s dividend payment on the basis of financial data that may amplify the dividend payment policy of pharmaceuticals and food industry in Bangladesh. In Bangladesh, the pharmaceuticals and food sector dominates the local food market and it contributes to develop our economy day by day. The pharmaceuticals and food industry is flourished rapidly. And this industry tries to fill up the individuals demand. Moreover, a number of foreign food companies are involved to enhance the improvement of the food industry. Pharmaceuticals industries are one of the most exporters of Bangladesh and earn lots of foreign currencies. Dividend policy is very important factor for every company and so these both of industries also. Dividend policy is very complex to investors and the general people. So in this report I emphasis on dividend policy on the basis of pharmaceuticals and food industries.

According to Wikipedia Dividend policy is concerned with taking a decision regarding paying cash dividend in the present or paying an increased dividend at a later stage. The firm could also pay in the form of stock dividends which unlike cash dividends do not provide liquidity to the investors; however, it ensures capital gains to the stockholders. The expectations of dividends by shareholders helps them determine the share value, therefore, dividend policy is a significant decision taken by the financial managers of any company. Coming up with a dividend policy is challenging for the directors and financial manager a company, because different investors have different views on present cash dividends and future capital gains. Another confusion that pops up is regarding the extent of effect of dividends on the share price. Due to this controversial nature of a dividend policy it is often called the dividend puzzle. So analysis the dividend puzzle of pharmaceuticals and food industries is the main matter of this report.

Dividend policy is the policy used by a company to decide how much it will pay out to shareholders in dividends. A company generates profit. Part of the profit is kept in the company as retained earnings and the other part is distributed as dividends to shareholders. From the share valuation model, the value of a share depends very much on the amount of dividend distributed to shareholders. Dividends are usually distributed in the form of cash (cash dividends) or share (share dividends).

Several factors must be considered when establishing a firm’s dividend policy. These include

The liquidity position of the firm: just because a firm has income doesn’t mean that it has any cash to pay dividends.
Need to repay debt: oftentimes there are negative covenants that restrict the dividends that can be paid as long as the debt is outstanding.
The rate of asset expansion: the greater the rate of expansion of the firm, the greater the need to retain earnings to finance the expansion.