c


c   










 Hotel




: Indian Hotels
EIH
Leela
Oriental Hotels
Asian Hotels


 c   

By dividend policy, we mean the payout policy that managers follow in deciding the size and pattern
of cash distribution to shareholders over time. In seminal paper, Miller and Modigliani (M&M)
(1961) argue that given perfect capital markets, the dividend decision does not affect the firm value
and is, therefore, irrelevant. Most financial practitioners and many academics greeted this conclusion
with surprise because the conventional wisdom at the time suggested that a properly managed
dividend policy had an impact on share prices and shareholder wealth. Since the M& M study, other
researchers have relaxed the assumption of perfect capital markets and offered theories about how
dividend affects the firm value and how managers should formulate dividend policy decisions. Over
time, the number of factors identified in the literature as being important to be considered in making
dividend decisions increased substantially.

In this analysis, we study 5 companies from the hotel industry in India and try and analyze their
dividend policies in terms of the theories in the financial literature. Ideally when a company¶s Return
on Equity is more than the required return on equity, the company and should give as less dividends
as possible, i.e. the retention ratio should be high in such cases. This is as per the Walter and the
Gordon growth Model. This analysis is done for a period of 5 years.
 j



j pividend Yield = 0.41 %
j
  
2006 2007 2008 2009 2010
EPS 9.34 3.34 3.88 3.77 1.05
Face Value (

2 2 2 2 2
Dividend per share 2.0 0.45 0.50 0.40 0.2
ROE 13.75 15.72 21.39 19.15 5.05
Dividend Payout Ratio 0.2715 0.1347 0.1287 0.1061 0.1901
Retention Ratio 0.7285 0.8653 0.8713 0.8939 0.8099

Ideally, when r>k, the value of the company would increase when the retention ratio of the company is
highest. It is seen here that from 2006 to 2008, when the ROE went up, the company decreased its
dividend payout ratio and then from 2008 to 2010, when the ROE came down the company again
increased its dividend payout ratio. This goes well the theory of Walter and Gordon.

! 
j pividend Yield = 0.98%
!


2006 2007 2008 2009 2010
EPS 30.5 5.22 5.94 3.03 1.96
Face Value 10 1 1 1 1
Dividend per share 13.00 1.6 1.9 1.2 1.0
ROE 12.93 18.35 19.67 9.20 4.05
Dividend Payout Ratio 0.4510 0.3152 0.32 .3959 .5095
Retention Ratio 0.5490 0.6848 0.68 .6041 .4905

The trend of retention ratio of Indian Hotels is in line with the theory of Walter & Gordon. As ROE
increased the company decreased its payout ratio and when it decreased from 2008 to 2010 it increased
its payout ratio as the ROE decreased.
O!: pividend Yield = 1.15%
O!
2006 2007 2008 2009 2010
EPS 2.76 6.97 7.34 5.05 2.70
Face Value 10 10 10 10 10
Dividend per share - 4.86 5.22 4.14 1.26
ROE 29.16 16.24 15.37 9.79 5.47
Dividend Payout Ratio 0 .1174 .3630 .3128 .6125
Retention Ratio 1.0 .8826 .6370 .6872 .3875

EIH has witnessed a steady decrease in PAT over the years which had lead to decrease in the ROE. The
increasing payout ratio can be attributed to the companies effort to keep the shareholders confidence in
the company intact.