AN OBSERVATION OF DIVIDEND POLICY TRENDS OF PROPERTY COMPANIES LISTED ON THE STOCK EXCHANGE OF SINGAPORE

Abstract

One of the most important questions of financial policy that must be decided by the board of directors is the disposition of net profits. To what extent should they be distributed to the shareholders as dividends or retained in the business for corporate purposes? From the corporate point of view, retained earnings are a most important source of funds, often exceeding the total amount of new security issues. High earnings also make it easier for established concerns to attract additional capital by a sale of securities. Retained earnings increase the common equity base and so increases the firm's ability to borrow. For many shareholders, the cash dividend is the concrete and visible reward for their investment; others recognise that the appreciation which can result from the reinvestment of earnings may be even more valuable compensation. Amidst such conflict of interests between the corparate and shareholders and among the shareholders themselves, the dividend policy controvercy in fact involves several schools of thought, each tries to advocate and explain the market sentiments and the expectation of a common investor. This dissertation does not seek to advocate any particular school of thought, or for that matter, the use of a particular form of dividend instrument, but rather attempts to examine the various policies adopted by the selected property companies, and conclude if there exists such 'unique best' policy that is popularly and consistently executed by the companies observed. It was found that most of the property companies observed do not adhere strictly to one particular policy. Majority of the companies had their dividends decided based on past dividend rate and current level of earnings. Contrary to theoretical beliefs, the more favoured "low regular plus extras" policy was found to be adopted by only one company; and the "constant payout ratio" policy often termed as "unwise" for firms experiencing volatile earning trends was adopted by one of the companies. Stock dividends were not frequent as it was not tax effective. Finally, the various dividend payout trends showed that there exists no 'unique best' policy that is popularly and consistently adopted by the property companies observed.