Residual Dividend Policy Constant Payout Ratio/ Stable dividend policyLow regular and extra dividend policy/ Hybrid

policy
3 Components as a % of earnings low fixed dividend and additional dividend when earnings are higher than normal
D/E Ratio 0.33 Consider long term debt/equity ratio
Earnings 1000
Capex 900
New Debt 300
Own funds 600
Dis-advantages Advantages
Volitality
Since it is difficult to maintian stable earnings, it is difficult to declare stable dividend
Advantages
Useful in longer term
Low regular and extra dividend policy/ Hybrid policy
low fixed dividend and additional dividend when earnings are higher than normal
Consider long term debt/equity ratio
1
2
3
4
5
6
7
8
Factors
Capital Impairment
Whether dividends impair capital, calculate fair value of shares after dividends are paid
Undue retention
Prohibit undue retention of retained earnings above the present and future investment needs
Ability to borrow
Funding needs
Liquidity
Shareholders would prefer to re-invest the extra dividend if it earns more than the rate at which the shareholder will earn
Considering the market dividend % also in the peer group as well as of the industry in general
Restrictions by Bank
Fair Value
FCFE
Interest Cost
Amout of Future Capex
Level of Working capital / Short Term Debts
Estimate ROC
Market Dividend %
The Free Cashflow to Equity (FCFE) is a measure of how much cash is left in
the business after non-equity claimholders (debt and preferred stock) have
been paid, and after any reinvestment needed to sustain the firms assets and
future growth.
Net Income
+ Depreciation & Amortization
= Cash flows from Operations to Equity Investors
- Preferred Dividends
- Capital Expenditures
- Working Capital Needs
- Principal Repayments
+ Proceeds from New Debt Issues
= Free Cash flow to Equity