BACHELOR IN MANAGEMENT

SEMESTER SEPT 2021

BBPW 3203

FINANCIAL MANAGEMENT II

MATRICULATION NO : 860616386344001
IDENTITY CARD NO. : 860616386344
TELEPHONE NO. : 017-5096756
E-MAIL : sabrinamahadi@oum.edu.my
LEARNING CENTRE : BANGI
 CONTENTS

INTRODUCTION 2

What is Dividend Policy? 3

How a Dividend Policy Works? 3

a) Constant Nominal Dividends (Regular Policy)

b) Constant Payout Ratio Policy
c) Residual Dividend Policy
d) Special Dividend Payout Policy

COMPANY BACKGROUND 4

a) IHH Healthcare Berhad

a. Dividend Payout (2013-2021)
b. Earnings per Share (2016-2020)

b) TMC Life Science Berhad

a. Dividend Payout (2013-2021)
b. Earnings per Share (2016-2020)

DIVIDEND PAYOUT RATIO 10

DIVIDEND PAYMENT ANALYSIS 10

DIVIDEND PAYMENT EVALUATION 11

SUMMARY 12

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INTRODUCTION
An organizations’ willingness to pay dividends to their shareholders over the time can
provide a positive message about its financial fundamentals and performance. A
cautiously planned and executed policy is important for maximizing shareholder wealth.
Dividends payout able to provide a signal to other potential investors of the company’s
worth. However, organizations are not restricted to pay in terms of cash dividend to their
investor. They are offered in other types of dividend payments such as stock dividend,
split dividend and share repurchases. Similarly, there were situations whereby many high
profiles Board of Directors decided to return excess capital to shareholders by offering
stock repurchase to the shareholders, this will result in fewer shares outstanding and give
the remaining share a bigger fraction rights in the company.

Some firms will come to a decision to give dividends in the form of stock or stock split.
Neither of these actions has economic value as both of the options do not increase
investors’ wealth. Dividend policy which increase the value of the company is
considered as the right dividend policy.

There are many types of dividend policy that managers can choose from for their
organizations. However, dividend policies will be based on the local tax laws, such as,
company tends to retain greater amounts of earnings if the countries tax on capital gains
is less than tax on dividends. However, in Malaysia, the Single Tier System was
introduced in budget 2008 that resulted in any dividend paid after 2008 are exempted in
the hands of shareholders. Business profit is taxed at the corporate level and can be
considered as the final tax. Shareholders with the highest tax bracket will benefit the
most from this as they do not need to pay for the tax differences. This development in the
system will attract more investors with the higher tax bracket or high-end investor to
invest in a dividend paying company.

The purpose of this research is to examine dividend payments behavior with respect to
the organisation’s dividends per share, earnings per share, payout ratio and retention ratio
of Malaysian healthcare companies listed on Bursa Malaysia Berhad. Studies shows that

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declaration of dividend either increases or decreases will be followed by an increase or
decrease in share prices respectively. The growing acceptance of unit trusts in Malaysia
offers attentiveness of returns in the form of dividends to investors. These funds will
invest in shares that can offer good returns in the form of capital gains and dividend
payout.

What Is Dividend Policy?

A dividend policy is the policy a company uses to structure its dividend payout to
shareholders. Some researchers suggest the dividend policy is irrelevant, in theory,
because investors can sell a portion of their shares or portfolio if they need funds. This is
the dividend irrelevance theory, which infers that dividend payouts minimally affect a
stock’s price

How a Dividend Policy Works

Despite the suggestion that the dividend policy is irrelevant, it is income for shareholders.
Company leaders are often the largest shareholders and have the most to gain from a
generous dividend policy. Most companies view a dividend policy as an integral part of
their corporate strategy. Management must decide on the dividend amount, timing and
various other factors that influence dividend payments. There are four types of dividend
policies such as constant nominal dividends (regular policy), constant payout ratio policy,
residual dividend policy and special dividends payout policy.

a) Constant Nominal Dividends (Regular Policy)

It is the easiest and most commonly used. The goal of the policy is a steady and
predictable dividend payout each year, which is what most investors seek.
Whether earnings are up or down, investors received a dividend. The goal is to
align the dividend policy with the long-term growth of the company rather than
with quarterly earnings uncertainty. This approcah gives the shareholder more
clarity concerning the amount and timing of the dividend.

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 b) Constant Payout Ratio Policy
Under the constant dividend policy, a company pays a percentage of its earning as
dividends every year. In this way, investors experience the full volatility of
company earnings. It earnings are up, investors get a larger dividend, if earnings
are down, investors may not receive a dividend. The primary drawback to the
method is the uncertainty of earning and dividends which is difficult to plan
financially when dividend income is highly unstable. Other than that, investors
may not see a dividend increase in boom years.

c) Residual Dividend Policy

The residual dividend policy suggests that dividend payments should be observed
as residual, which the company pays out what dividend remain after the company
has paid for its capital expediture (CAPEX) and working capital. Companies
using the residual dividend policy prefer to rely on equities that are generated
internally to finance new investments or projects. This approach is volatile, but it
makes the most sense in terms of business operations. Investors do not want to
invest in a company that justifies its increased debt with the need to pay
dividends.

d) Special Dividend Payout Policy

Firms sometimes issue extra or special dividends to their shareholders on certain
occasions. This is done when the level of earnings are far better than expected in a
given period; the firms may pay this additional income as a form of special
dividends.

COMPANY BACKGROUND
As required by the assignment, a case study on dividend payout for healthcare industry
will be conducted for two chosen organisation with details such as its company
background, dividend payment and financial reporting history from 2016 to 2020. The
chosen organisation for the case study is IHH Healthcare Berhad and TMC Life Science

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Berhad which both are local company and listed in Bursa Malaysia under healthcare
provider.

IHH HEALTHCARE BHD

IHH Healthcare Bhd is an international private healtcare group on upmarket health
services, and is Asia’s largest private healthcare group. It operates a network of
healthcare clinics, hospitals, and postoperative rehabilitation centers. It also provides
ancillary services, which include diagnostic laboratories, imaging centers, ambulatory
care, and medical education facilities. The firm receives the largest proportion of revenue
through its Parkway Pantai segment, which operates hospitals and provides healthcare
services in Asia. Two of Parkway Pantai’s key markets are Singapore and Malaysia. The
second-largest proportion of revenue comes from Acibadem Holdings, a hospital operator
and service provider in Central and Eastern Europe, the Middle East, and North Africa. In
recent years, IHH Healthcare Berhad has expanded significantly in India and Greater
China. The company is founded in 1974 and its main headquarter is at Kuala Lumpur,

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Malaysia. The dividend payment per share and earnings per share for IHH Healthcare
Berhad from 2016 to 2020 is shown below:

Dividend Payout 2013-2021

Earnings Per Share

2016 - 2017

2018 - 2019

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2019 - 2020

TMC LIFE SCIENCE BHD

TMC Life Sciences Bhd is an investment holding company operating a multi-disciplinary
tertiary care center and fertility center in Malaysia. It was founded in 1994 and operates

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Tropicana Medical Centre, Kota Damansara (TMCKD), a medical center located in
Petaling Jaya. Its TMCKD provides healthcare services in various medical/surgical
specialties and subspecialties, including anesthesiology, cancer, cardiology, colorectal,
dermatology, ENT, fertility, gastroenterology, as well as offers internal medicines and
respiratory medicines. Its fertility center provides a range of fertility treatments for
couples. The company also operates a women’s clinic; provides fertility consultancy,
laboratory, and embryology services; and offers pharmacy services and products. The
dividend payment per share and earnings per share for TMC Life Science Berhad from
2016 to 2020 is shown below:

Dividend Payout 2013-2021

Earnings per Share

2016-2017

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2017-2018

2019-2020

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10
 DIVIDEND PAYOUT RATIO
Year
Company Item
2016 2017 2018 2019 2020
DPS 0.03 0.03 0.03 0.04 0.04
EPS 7.44 11.31 6.54 5.28 2.27
IHH
Payout Ratio 0.004 = 0.003 = 0.005 = 0.008 = 0.018 =
Healthcare
(DPS/EPS) 0.4% 0.3% 0.5% 0.8% 1.8%
Berhad
Retention Rate 0.996 = 0.997 = 0.995 = 0.992 = 0.982 =
(1- Payout Ratio) 99.6% 99.7% 99.5% 99.2% 98.2%
DPS 0.15 0.17 0.18 0.20 0.17
EPS 1.22 1.50 1.60 1.50 1.60
TMC Life
Payout Ratio 0.122 = 0.113 = 0.113 = 0.133 = 0.106 =
Science
(DPS/EPS) 12.2% 11.3% 11.3% 13.3% 10.6%
Berhad
Retention Rate 0.878 = 0.887 = 0.887 = 0.867 = 0.849 =
(1-Payout Ratio) 87.8% 88.7% 88.7% 86.7% 84.9%
*DPS = Dividend per Share, EPS = Earnings per Share

DIVIDEND PAYMENT ANALYSIS

As stated in the schedule above, IHH Healthcare Berhad have a constant dividend per
share for the first three years which is RM0.03 and increased to RM0.04 for the next two
years. Their earnings per share shows sharp increase from RM7.44 per share in 2016 to
RM11.31 per share in 2017, which is an increase of RM3.87 or 65.78%! The company
however have constant decrease of earnings per share for the next three years (2018,
2019 and 2020) which is recorded at RM6.54, RM5.28 and RM2.27 respectively. The
lowest dividend payout ratio for IHH Healthcare Berhad is in 2017 with 0.3% where that
year also recorded the highest earnings per share of RM11.31. The highest dividend
payout ratio recorded is for the year of 2020 with 1.8% while that year also recorded the
lowest earnings per share of RM2.27. the retention rate is constant at 99% from 2016 to
2019 before decreasing to 98% on the year of 2020.

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TMC Life Science Berhad recorded constant increase of dividend per share for the first
four years of 2016 to 2019 with RM0.15, RM0.17, RM0.18 and RM0.20 respectively.
The dividend per share later decreased to RM0.17 in 2020. Earnings per share (EPS),
however, shows slight changes for all 5 years recorded, where in 2016 the EPS is
recorded as RM1.22 before increasing to RM1.50 and RM1.60 for the year of 2017 and
2018. The EPS later decreased to RM1.50 in 2019 before increasing back to RM1.60 in
2020. The highest payout ratio recorded is in 2019 with 13.3% while the lowest is at
10.6% in 2020. The payout ratio from 2016 to 2018 is at 12.2%, 11.3% and 11.3%
respectively. The retention rate however, is inconsistant, where in 2016 it recorded as
87.8% and constant for the next 2 years which is also the highest retention rate of 88.7%
before decreasing in 2019 with 86.7% and 2020 with the lowest retention rate of 84.9%.

DIVIDEND PAYMENT EVALUATION

Dividend per Share for IHH Healthcare Bhd &

TMC Life Science Bhd
0.25
0.2
0.2 0.18
0.17 0.17
0.15
0.15
Axis Title

0.1

0.05 0.04 0.04

0.03 0.03 0.03

0
2016 2017 2018 2019 2020
Axis Title

IHH Healthcare Bhd TMC Life Science Bhd

Based on the bar chart above, TMC Life Science Berhad paid higher dividend payment to
its shareholders compared to IHH Healthcare Berhad. This is due to different policy
implemented by both organisation. TMC Life Science Berhad implemented the constant
payout ratio policy where the divident payout is based on orgnisation’s performances.
IHH Healthcare Berhad implemented the constant nominal dividends (regular policy)
where the dividends payout is constant with slight increase in 2019 which shows

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certainty in dividends payout notwithstanding the organisation’s performances or
economic condition.

Earnings per Share for IHH Healthcare Bhd & TMC

Life Science Bhd
12
11.31
10

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Earnings per Share

7.44
6 6.54
5.28
4

2 2.27
1.5 1.6 1.5 1.6
1.22
0
2016 2017 2018 2019 2020

IHH Healthcare Bhd TMC Life Science Bhd

Based on the chart above, IHH Healthcare Bhd shows significant gap in earnings per
share (EPS) compared to TMC Life Science Bhd with slight differences in 2020. The
organisation faced constant decreased of EPS from 2017 to 2020, where 2020 is also the
lowest EPS recorded. This trend signals that IHH Healthcare Bhd might face further
decreased of EPS in 2021 that will influence the organisation’s growth and development
which is unfavorable to their shareholders. Meanwhile, TMC Life Science Bhd shows
slight changes in the EPS throughout the recorded year. However, the EPS value is lower
compared to IHH Healthcare Bhd. The organisation will have slight increase or decrease
in EPS for 2021 which is more certainty and stability compared to IHH Healthcare Bhd.
Based on the chart, more investor will invest in TMC Life Science Bhd due to more
stability and long-term growth.

SUMMARY
Dividend payout by an organisation can provide positive message about its financial
strength and growth to shareholders and potential prospect for investment. Dividend
payment is made through cash dividends, stock dividend, split dividend and share

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repurchases. There are several dividend policy to choose from such as constant nominal
dividends or better known as regular policy where it is the most common form of
dividend policy. It is the most favorable form of dividend payout to shareholders due to
its certainty where investors will received their dividend yearly even in low or decreased
earnings by the organisation. Other than that, organisation can opt for constant payout
ratio policy where a percentage of earnings paid as dividends constantly each year. This
policy has pro and cons where shareholders will received higher payout during growth
and low or none during recession in organisation’s performances which creates
uncertainty in dividends payout. Furthermore, organisation can implement the residual
dividend policy where the dividend payout is based on balance of profit after deduction
of their capital expenditure and working capital. The special dividend payout policy is
where an organisation issue extra or special dividends to shareholders on certain
occassion such as achieve higher earnings.

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