Southwestern University PHINMA

Urgello Street, Cebu City

Dividend
Policies

Submitted by:
Group 4 - Capital Budgeting
Leader:
Ferraren, Wellamae
Members:
Rocamora, Marie Socatre, Deo Grace
Buro, Zam Khrisha Dumdum, Leann
Degamo, Ronalyn Jimeno, Trixia Dale
Sebastian, Vera Niña

Submitted to:
Germinal L. Jucarlo, MBA, CP
1. Regular Dividend Policy
Meaning: A company’s consistent and predictable schedule for distributing dividends to its
shareholders.
Example: ABC Co., operating in the renewable energy sector, establishes a regular dividend
policy to attract investors. It pays a quarterly dividend of 4 PHP per share, leading to an annual
dividend of 16 PHP per share.

2. Four dividend payouts are made per year, each occurring every three months
Meaning: This means that shareholders will receive a consistent return on their investment, and
the company can reinvest in future projects.
Example: ABC Company pays a quarterly dividend of PHP 2.50 per share. With 300 shares, an
investor will receive PHP 750 every three months, for a total of PHP 3,000 in dividends paid in a year.

3. Equal Dividend Payments

Meaning: Ensures that each shareholder receives an equal dividend payment per share they own.
Example: ABC company distributes dividends evenly among all shareholders. Suppose the
company decides to pay a total dividend of 1,000,000 PHP to its shareholders. If there are 100,000
shares outstanding, each shareholder would receive a dividend of 10 PHP per share, ensuring fairness
and equal treatment among all investors.

4. Minimum Dividend Policy

Meaning: The company promises to pay shareholders at least a minimum dividend percentage
of its earnings regardless of how well its finances perform. In hard times or good, this guarantees that
the investors will continue to earn a set amount of income from their investment.
Example: Despite of its financial performance, Company ABC chooses to ensure that its
shareholders will receive a minimum dividend of 2% per share each quarter. This implies that investors
will have a steady source of income, with dividends of at least 2% per share paid out every three
months.

5. No dividend policy
Meaning: The company will not distribute dividend to its shareholders because any profits
earned will be reinvested into the business for future growth.
Example: ABC, a rapidly expanding retail chain may allocate all profits, say 60 million PHP,
toward opening new stores, investing in marketing campaigns, and

enhancing its supply chain infrastructure. These funds would be used to fuel growth initiatives and
expand market presence, rather than distributing dividends to investors.

6. Special Rates
 Meaning: Offered by companies in cases where they have raised excess cash or have
encountered extraordinary events such as the sale of company shares or the settlement of major legal
matters.
Example: ABC Company recently sold part of its assets, bringing in new cash. To compensate
the shareholders, they decide to issue a special dividend of PHP 5 per share, above and beyond their
ordinary number of shares. Shareholders will receive these special shares in addition to the ordinary
shares.

7. Performance-Based Allocation
Meaning: Companies establish targets that must be met to distribute shares. Usually, these
criteria involve the company’s income, the value of each share, its overall progress, and targets for
business expansion or debt settlement.
Example: ABC Company intends to raise the percentage of funds distributed to their
shareholders by 10%. By the end of the year, it generated 12% more revenue. The company performed
impressively, resulting in shareholders receiving a higher than expected 40% of the profits in dividends.
The company was paid a dividend of PHP 4,000,000 the previous year. Shareholders received this
money based on their ownership of company shares.

8. Progressive Dividend Policy

Meaning: A company that uses a progressive dividend policy aims to gradually increase the
dividends it pays to the shareholders as it becomes successful over time.
Example : ABC company starts paying the shareholders P20 per share annually. As the
company grows and makes more profit, it increases the dividend to P25 per share annually and then to
P30, and so on.

9. Stability Dividend Policy

Meaning: Prioritizes maintaining a consistent and predictable dividend payout over time,
regardless of fluctuations in earnings.
Example: ABC company commits to paying out 50% of its annual earnings as dividends,
ensuring shareholders receive a steady income stream. Even if earnings vary from year to year, the
dividend payout remains relatively constant, providing stability to shareholders.

10. Growth Investment Dividend Policy

Meaning: Focuses on reinvesting a significant portion of profits back into the company’s growth
initiatives, with only a modest portion allocated for dividend payments.
Example: Tech Company ABC retains 70% of its earnings to fund research and development
projects and expand its market presence, while distributing the remaining 30% as dividends to
shareholders.

11. Longevity Reward Dividend Arrangement

 Meaning: Under this imaginative arrangement, companies would offer expanded profits or
reward profits to long-term shareholders as a remuneration for their devotion and commitment to the
company’s development.
Example: ABC Company presents a longevity reward dividend arrangement where shareholders
who have held their offers for an indicated term, such as five years or more, get an extra profit boost of
10% on top of the normal profit installment. This empowers long-term speculation and adjusts the
shareholder interface with the company’s long-term victory.

12. Community Affection Profit Approach

Meaning: Under this arrangement, a parcel of the company’s profit is distributed back to the
community as support for advancement ventures or charitable activities, reflecting the company’s
commitment to social obligation.
Example: ABC Company executes a Community Affection Profit Approach where 5% of the
yearly profit payout is committed to financing instruction programs in under served communities where
the company works. This illustrates corporate citizenship and contributes to positive social change.

13. Geographical Execution Dividend Policy

Meaning: This arrangement links to the company’s execution of dividends in particular
topographical districts, regions, or areas.
Example: ABC Company encounters remarkable development in their specific advertising in
their particular region and disseminates extra profits to shareholders who contributed in that locale.

14. Lumpy Dividend Policy

Meaning: Dividends fluctuate significantly from one period to another.
Example: ABC’s oil and gas exploration enterprises dividend payments can be highly variable
due to fluctuating oil prices and drilling results. It might pay a dividend of 15 PHP per share during
periods of high oil prices and successful well completions but reduce or suspend dividends during
downturns in the energy market.

15. Variable Dividend Policy

Meaning: Adjusts dividend payments according to their financial performance and available
cash flow.
Example: In a profitable year, ABC l company pays a dividend of 5 PHP per share to its
shareholders. However, in a challenging year with lower earnings, the dividend payment may be
reduced to 2 PHP per share to conserve cash and maintain financial stability. This variability allows the
company to adjust its dividend payments according to its financial performance and market conditions.

16. Residual Dividend Policy

Meaning: Pays dividends from remaining profits after funding all investments and financial
obligations. It aligns dividends with the company’s needs but may vary depending on earnings and
expenditures.
Example: ABC company has 1 million in profits after fulfilling all its investment and financial
obligations. Instead of setting a predetermined dividend amount, it would distribute dividends from this
1 million based on what’s left after all necessary expenditures. If the company decides it needs to retain
a portion of the profits for future investments, it might distribute only a portion of the 1 million to
shareholders as dividends, keeping the rest for reinvestment.

17. Threshold Dividend Policy

Meaning: Sets a minimum earnings threshold that must be met before dividends are paid out to
shareholders. This policy ensures that dividends are distributed only when the company achieves a
certain level of profitability, promoting financial stability and preventing the payout of dividends during
lean periods.
Example: Company ABC sets a threshold dividend policy where it will pay dividends only if its
annual earnings per share (EPS) exceed 10 PHP. In a given year, if the company achieves an EPS of 12
PHP, it will distribute a dividend of 3 PHP per share to its shareholders. However, if the EPS falls below
the threshold, no dividends will be paid for that year, ensuring that dividends are only distributed when
earnings reach a certain level of profitability.

18. The company targets a dividend payout ratio of roughly 60-70% of its annual earnings
Meaning: This strategy ensures shareholders enjoy a stable and attractive income while also
providing the company with the flexibility to maintain financial strength and pursue strategic initiatives
for long-term growth.
Example: ABC company has reported annual earnings of 10 million. Following its targeted
dividend payout ratio of 60-70%, the company plans to distribute between 6 million and 7 million in
dividends to its shareholders.

19. Shareholder Voting Dividend Policy

Meaning: Grants shareholders the authority to vote on the distribution and amount of dividends,
contingent on the company’s performance, financial health, and future outlook.
Example: ABC company holds its annual general meeting (AGM), where shareholders vote on
proposed dividend options for the upcoming fiscal year. The management proposes three options, A:
Maintain the current dividend of 8 PHP per share, B: Increase the dividend to 10 PHP per share, C:
Reduce the dividend to 6 PHP per share. Shareholders cast their votes, and Option B receives the
majority, indicating a preference to increase the dividend. Consequently, ABC company . adopts Option
B, and dividends for the next fiscal year will be increased to 10 PHP per share, providing shareholders
with a higher dividend payout.

20. Seasonal Dividend Policy

Meaning: Adopted by companies to pay dividends at specific times of the year, typically
corresponding to seasonal fluctuations in business performance or cash flow.
 Example: During peak tourism seasons, such as December and April, ABC company
experiences higher revenues and profitability due to increased tourist arrivals. In December, the
company distributes a dividend of 5 PHP per share to its shareholders, reflecting the robust financial
performance during the holiday season. Similarly, in April, when tourist activity peaks during the
summer vacation period, the company pays a dividend of 4 PHP per share.