Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Optimal Dividend Policy Analysis in Large Scale Indonesia
Company
Hans Reinaldi* and Anggoro B. Nugroho**
Dividend policy tells about how much profit should be reinvested to the business and
how much profit should be returned to the Investor. The Firm certainly need money to
invest for the growth of its business and hope that in the future the business can
generate more profit, but the firm also need to distribute the income to the investor and
shareholder because definitely the investor want the maximum return of the money
that they invested to the firm. How much payout that the firm distributes may affect the
valuation of its stock because it will indicate how well the firm relatively to its peers and
investors. This poses trade-off for the managers of the firms.
This study conducted to analyze current dividend policy of the Firm and determine the
optimal dividend policy for the future. The object of this study is the largest holding
company in Indonesia that listed in Indonesia Stock Exchange (IDX) which is PT Astra
International Tbk. The analysis of current dividend policy is conducted in the last 5
years (2009-2013). The optimal dividend policy for the future will be determined by the
Economic Value Added principle for the company and total yield or total return for the
shareholders. In this study, the author uses some method like Pro Forma Financial
Statement to forecast future scenario of the firm and Optimal Capital Structure to
determine how much debt can be added to the company.
From this study, the authors expect to develop the optimal payout policy for the
company to maximize the shareholder wealth and also meet the investment needs.
The result can be considered for the company to be implemented in the future.
JEL Codes: G30, G32 and G35
1. Introduction
One of the basic principles of corporate finance is payout principle or also can be said
dividend principle. Dividend principle is equally important with others corporate finance
principle which is Investment principle and financing principle. According to Wikipedia,
Dividend is a payment made by a corporation to its shareholders, usually as a distribution
of profits and free cash flow. There are several types of dividends but the most common
especially in Indonesia are Cash Dividend. When a corporation generate a profit or
surplus from its business, it can either reinvest to grow its business (called retained
earnings), or it can be distributed to investor or the shareholders. Payout or dividend policy
tells about how much profit should be reinvested to the business and how much profit
should be returned to the Investors or shareholders. In private company or businesses,
this may just involve the owner withdrawing a portion of his or her funds from the
business. But, in a publicly traded corporation or company that listed in the stock
exchange, this will involve paying cash dividends, giving share dividend and repurchasing
share.
*Hans Reinaldi, School Of Business & Management Institute Technology Bandung,
Indonesia. Email: hans.reinaldi@sbm-itb.ac.id
** Anggoro B. Nugroho, Department of Business Risk & Finance, Bandung Institute of Technology,
Indonesia. Email: anggoro@sbm-itb.ac.id
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
In Indonesia, the Dividend policy is not too much discussed in the corporate finance,
whereas the numbers of people who engage actively in stock market or becoming the
shareholders are increasing. As of April 2014, the total number of Company that listed in
the Indonesia Stock Exchange (IDX) which is authorized stock exchange in Indonesia is
492 companies. These 492 companies are competing to attract people to becoming their
shareholders. With well-planned dividend policy, the company will become more attractive
to the investors, stand out among others company. Based on this fact, the author conduct
the study entitled “Optimal Dividend Policy Analysis in Large Scale Indonesia Company”
2. Literature Review
2.1. Dividend
According to Ross in the 9th edition of corporate finance book, the term of dividend usually
refers to a cash distribution of earnings to the shareholders. In accordance with that,
According to Wikipedia, dividend is a payment made by a corporation to its shareholders,
usually as a distribution of profits. So it was clear that dividend can be defined as payment
that given from the company to the shareholder as returns of their investment in the
company. This payment is usually comes from the profit that generated from the operating
activities of the company. However, not all the profit that comes from the operating
activities have to distribute as dividend, it depends on the policy in the company. Some
part of the net income might be retained (called retained earnings) that used to fulfill
another needs of the company in the future such as capital expenditure and hope that in
the future the company will generate more profit from its operating activities. The decision
to distribute a dividend rests in the hands of the Board of Directors of the company. Terms
relating to dividends which are often used:
2.2. Dividend Policy
According Gitman in the book Principle of Managerial Finance, payout policy or dividend
policy is decisions that firms make about whether to distribute cash to shareholder, how
much cash to distribute and the means by which cash should be distributed. When a
company generate a profit or surplus from its business, it can either reinvest to grow its
business (called retained earnings), or it can be distributed to investor or the shareholders.
Payout or dividend policy simply tells about how much profit should be reinvested to the
business and how much profit should be returned to the Investors or shareholders.
Although dividend policy is probably less important than the investment and financing
policy, but these is nonetheless policy that managers and Board of Directors face
routinely. Investor and shareholder will evaluate the dividend policy and improper
decisions regarding dividend policy can make significant influences towards the company
stock price. Dividend policy has generated much debate in the world of corporate finance.
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Many experts criticize about this in the past and come up several theories about dividend
policy.
2.3 Economic Value Added / Economic Profit
Economic value added or also can be said economic profit is term that used to calculate
Profitability of the company and its operating performance. This term first introduced and
patented by Joel Stern, Bennett Stewart and Don Chew in 1990s. Bennett Stewart in his
website evadimensions.com stated that”EVA, or economic value added, is a special way
to measure profit that is better than all others. It measures "economic profit" as opposed
to accounting profit. It is measured after deducting the full '"opportunity" cost of all the
capital invested in business assets. It doesn't measure profit until all investors,
shareholders included, have earned a minimum return for bearing risk. EVA, in short,
turns the balance sheet into another charge to earnings, just like cost of goods sold”.
From the definition and statement above, it can be told that EVA is term to calculate net
operating profit after subtracting with cost that comes from capital. From the perspective
of the company, EVA seems more reliable than other financial performance like EPS and
net income because EVA calculating the charges of capital, meanwhile other terms like
EPS and net income never considers the charge of capital.EVA or economic profit
calculates what profit remains after the company pays its cost related with issuing a
Capital both from debt or equity. Donaldson Brown, Chief Financial Officer of General
Motors, before the introduction term of EVA, also concern about relationship between
profit and cost that comes from capital. He wrote in 1924, “The objective of management
is not necessarily the highest rate of return on capital, but to assure profit with each
increment of volume that will at least equal the economic cost of additional capital
required.”
There are 2 main components to calculate EVA which is Net Operating Profit After Taxes
(NOPAT) and Capital Charges. The formula is:
Capital Charges is the cost that comes from capital. The source of capital is none other
than debt or equity. Capital Charges can be calculated by finding the cost of equity and
the cost of debt then determine the Weighted Average Cost of Capital (WACC) and
multiply it with the Invested Capital. But by using WACC to find the capital charges, it’s not
will be the actual cost that directly incurred by the company. There are 2 source of the
capital as stated before which is Debt and Equity. The Actual cost that is directly paid by
the company for issuing debt or financing with debt is Interest Expense, and the actual
cost that is directly paid by the company for issuing equity both common equity and
preferred equity is dividend. This research used this term in finding the Capital Charges.
Or
To determine Interest Expense, the interest rate has to be known first. Then multiply the
interest rate with the total Debt to get interest expense.
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Interest rate can be known by using the synthetic bond rating from Damodaran.
Damodaran (2001) illustrate the relationship between bond rating and interest coverage
ratio.
Table belows is the analysis of the interest coverage ratio of High Market Capitalization
Company in different rating classes by Damodaran.
Interest Coverage Ratio
> 8.5
6.5-8.5
5.5 - 6.5
4.25- 5.5
3- 4.25
2.5-3
2- 2.5
1.75-2
1.5-1.75
1.25-1.5
0.8-1.25
0.65-0.8
0.2-0.65
<0.2
Rating
AAA
AA
A+
A
ABBB
BB
B+
B
BCCC
CC
C
D
This Bond rating will be adjusted to Indonesian market interest rate to define the interest rate
of the company’s debt base on this bond rating. According to Harry (2007), the indonesia
market interest rate will be as follows
Indonesia Market Interest rate table
Rating
AAA
AA
A+
A
ABBB
BB +
BB
B+
B
BCCC
CC
C
D
Indonesian Market
Interest Rate (%)
12.2
12.72
13.24
13.76
14.28
14.8
15.32
15.84
16.36
16.88
17.4
17.92
18.44
18.96
19.48
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Another Component of the Capital Charges other than Interest Expense is dividend, either
preferred dividend or common dividend. This is the Aspect that is very affected by the
company’s Dividend policy. From this can be seen that there are relationship between The
Company’s Economic Profit or EVA and the company’s dividend policy.
2.4 Total Yield / Total Shareholder Return
In finance, according to Wikipedia, the term yield describes the amount in cash (in
percentage terms) that returns to the owners of a security. In the Capital market, the
shareholder that holds stocks of a company typically will get 2 type of return or yield which
is capital gain and dividend gain. Capital gain refers to the return that the shareholders get
from the appreciation or raise in the stock price. The Shareholders can obtain the capital
gain by selling stocks in the higher price than when they bought. Another form of returns
that the shareholders will get is dividend. Companies usually distribute a portion of its
earnings as dividend to its shareholder. The term of Dividend that paid is commonly stated
as Dividend per share (DPS). The total Yield/Total Shareholder Return is the addition of
these two things, Capital gain and Dividend Gain.
or
2.5 Capital Structure
Capital Structure decision simply deciding how much debt and how much equity should be
included in the capital. Financing with Debt and equity certainly have its own advantages
and this advantages. The cost from financing with debt or commonly said as cost of debt
normally will lower than the cost of equity. Creditors demands lower returns because they
take the least risk, it’s because the creditors have higher priority of claim against any
earning or assets available for payment. In other words, if the company suffers
bankruptcy, the company still has the obligation to pay the debt, whereas the company do
not have obligation to return the equity. The tax deductibility from interest payment also
lowers the cost of debt of the company. In Contrast with debt that has to repay, equity
capital remains invested in the company, it has no maturity date. But in the other hand,
the company that raises its debt can see that its cost of debt also will rise. This happen
because the creditors will take more risk that the company cannot repay its debt. High
level of Debt or excess in debt also will raise the cost of financial distress. Financial
distress is the condition that the company cannot meet its obligation to paying the debt.
The trade-off between debt and equity in capital structure postulates that manager have to
choose the mix of debt and equity that fulfil a balance between the tax advantage of the
debt and the various costs of using debt.
Optimal Capital Structure can determine by level of debt to equity ratio resulting the
highest company value.
Where:
VL
= Firm / Company Value with leverage (Debt)
VU = Firm value without Leverage (no Debt)
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Tax Shield = Total debt x (1 – tax rate)
According to Ross (2010), in his book Corporate Finance, Firm / Company value without
leverage is calculated as Follows
Where Cost of Equity unleverage is calculated as follows:
From this calculation can be seen that the value of firm with debt (VL) will increase in line
with increasing amount of debt. This is because the tax shield. But, as stated before,
increasing debt also will increase the financial distress cost. This Financial Distress cost
will reduce the firm / company value. According to Kortweg (2007) in thesis that written by
Yandri (2013), the model used in the cost of financial distress are a quadratic function of
leverage.
Where:
CFD
= Financial Distress Cost
Probability of Distress = Quadratic function of leverage
So, according to Naibaho (2012) in thesis that written by Yandri (2013) the actual
company value can be calculated as follows:
Where:
V = Actual Firm / Company Value
VL = Firm / Company value with leverage
CFD = Financial Distress Cost
3. The Methodology and Model
3.1 Problem Identification
The first thing conducted to do this research is the problem identification. In this step,
problems are identified from the topic that has been chosen in this research which is
Dividend Policy in Indonesia. After doing the problem identification from this topic, several
problems were found. From these problems, the objective of research can be determined.
And after knowing the research objective, can be known the literature and theory that can
support this research to resolves the problems identified.
3.2 Literature Review
Literature review is conducted to get the theory and past research to support this research
in resolving the problems. This Research mainly use the literature from Book, Journal,
Article from the expert and past research about dividend policy, capital structure and
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Economic Value Added. By doing this step, hopefully the research can comes up with the
valid conclusion. From this step also revealed data that is required in this research.
3.3 Data Collection
In this study, the sample company that used is the largest Indonesia Holding Company by
its market capitalization in the last 3 years which listed in Indonesia Stock Exchange (IDX).
Stated in www.indonesia–investments.com, company that most frequent had the largest
market capitalization in the last 3 years are PT Astra International Tbk. All the data used
are collected from the yearly financial report of PT Astra International Tbk. The yearly
financial reports are obtained from the company official Website, www.astra.co.id. And for
the Stock price and dividend payment history of PT Astra International Tbk, the data are
obtained from Indonesia Capital Market Electronic Library (ICAMEL).
3.4 Data Analysis
Next Step to do after collected the data are processing the data so the data can be
analyse and get the conclusion of this research. There are some steps in the data
analysis process which is Current Dividend Policy Analysis, Proposed Dividend Policy,
and Chosen Dividend Policy
3.5 Conclusion and Recommendation
In this step, all the analysis that conducted in this research is summarize to get the
conclusion of this research. From the conclusion, recommendation can be given for the
related parties of this research. Not to forget, the problems that have identified in the
beginning of the research also have to be solved by the conclusion.
4. The findings
4.1. Dividend policy Analysis to Economic Profit
This analysis will look at the current dividend policy compare to the Firm Value. The Firm
Value are measured using the Economic value added principle or also known as the
economic profit. The Economic Profit of PT Astra International can be calculated as
follows.
NOPAT calculation table. All numbers in IDR billion
EBIT
Increase in Allowance for bad debt
Increase in Lifo reserve
Interest on operating lease
NOP
Reported Income tax expense
Increase in Deferred Tax Liability
Tax Subsidy on Deductible Expenses
Cash Operating Taxes
NOPAT
2013
28,632
(21)
-
2012
28,919
293
-
28,611
5,226
400
33
4,859
23,752
2011
26,484
116
-
29,212
5,156
1,033
66
4,189
25,023
2010
21,515
367
-
26,600
4,695
821
3
3,877
22,723
2009
16,887
88
-
21,882
4,027
81
(4)
3,942
17,940
16,975
3,958
87
(18)
3,853
13,122
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Year
NOPAT
2009
2010
2011
2012
2013
13,122
17,940
22,723
25,023
23,752
Interest
Expense
2,902
4,367
6,191
8,105
9,214
Preferred
Dividend
Dividend
2,404
2,638
3,292
3,321
2,880
EVA
4,534
6,477
8,016
8,744
8,744
3,282
4,457
5,224
4,853
2,914
EVA calculation table. All numbers in IDR billion
As it can be seen from the calculation and figure above, the maximum Economic Profit of
PT Astra International is at year 2011. The figures show that EVA is raise in 2009 and
reaches the maximum Value at 2011 and after that it decrease in 2012 and 2013. High
economic profit means that the company use optimal capital from debt and equity, it also
means that the company can generate more operating profit and maintain the capital
charges. This figures tells that the company have the most optimal capital structure at
2011 compare with other years, so it can be told that regarding to the existing dividend
policy, PT Astra International has generated the economic profit but the Value are not
maximize. Economic profit continuously decreases after its reach the maximum value at
2011. It indicates that the company not yet maintains sustainable economic profit by
existing capital structure and dividend policy
4.2. Dividend Policy Analysis to Capital Structure
Dividend policy is very influenced by the capital structure. The Company is always needed
to invest to grow its business. The investment always related with capital. How much the
company can add the debt to its capital and how much the company should use the net
income to its capital It can determined by . How much part of the net income should be
reinvested to the business and how much part of net income should be used to dividend
payment can be answered by knowing the optimum capital structure of the company.
From the analysis of the company economic profit, known that the economic profit is
reach the maximum value at 2011, so the proportion of Debt and Equity at year 2011 can
be used as the targeted capital structure
Capital structure and Firm Value in 2011 table (IDR billion)
% Debt
0%
5%
10%
15%
20%
25%
26%
27%
28%
29%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
Debt to
Equity
0%
5%
11.11%
18%
25%
33%
35%
37%
39%
41%
43%
54%
67%
82%
100%
122%
150%
186%
233%
300%
400%
567%
900%
1900%
Debt
0
6041
12083
18124
24166
30207
31416
32624
33832
35040
36249
42290
48332
54373
60415
66456
72497
78539
84580
90622
96663
102705
108746
114788
Equity
120829
114788
108746
102705
96663
90622
89413
88205
86997
85789
84580
78539
72497
66456
60415
54373
48332
42290
36249
30207
24166
18124
12083
6041
Cost of equity unleverage
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
14.72%
EBIT
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
26484
Adjusted
Tax Rate
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
VU
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
143,943
Tax Shield
0
1208
2417
3625
4833
6041
6283
6525
6766
7008
7250
8458
9666
10875
12083
13291
14499
15708
16916
18124
19333
20541
21749
22958
VL
143,943
145,151
146,360
147,568
148,776
149,985
150,226
150,468
150,710
150,951
151,193
152,401
153,609
154,818
156,026
157,234
158,443
159,651
160,859
162,067
163,276
164,484
165,692
166,901
Probability Expected
V
of CFD
CFD
0
0 143,943
0.003
15 145,136
0.010
121 146,239
0.023
408 147,160
0.040
967 147,810
0.063
1888 148,097
0.068
2124 148,103
0.073
2378 148,090
0.078
2652 148,057
0.084
2947 148,004
0.090
3262 147,930
0.123
5181 147,221
0.160
7733 145,876
0.203
11011 143,807
0.250
15104 140,922
0.303
20103 137,131
0.360
26099 132,344
0.423
33183 126,468
0.490
41444 119,415
0.563
50975 111,093
0.640
61864 101,411
0.723
74204 90,280
0.810
88084 77,608
0.903 103596 63,305
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
From the figure above, the optimal capital structure that maximizes the Company Value
are at 35 % debt to Equity Ratio. It tells that the company has to maintain its debt capacity
35% of its equity.
Current D/E
Target D/E
Total Equity 2013 (IDR Billion)
Total Debt 2013 (IDR Billion)
Target Debt (IDR Billion)
Incremental (IDR Billion)
61%
35%
106,188
64,523
37,166
27,357
Current Debt to Equity Ratio of PT Astra International tbk is larger than the optimal debt to
equity ratio, it means that the company has too much debt with current level of Equity, so
the company has to raise the value of equity or lower the Debt capacity to get the optimal
capital structure which maximizes the Company Value. The Debt that has to be reduced is
IDR 27,357 Billion. Too much Debt means that the company has to suffer high bankruptcy
risk. This fact also tells that the company shall not fund the investing activities by issuing
new debts.
4.3 Proposed Divided Policy
According to Parab (2010) and Rose (2012) there are 3 types of dividend policy which will
be used to proposed and determining the optimal dividend policy for PT Astra
International Tbk, which are:
1. Residual Dividend Policy
Companies using the residual dividend policy choose to rely on internally generated equity
to finance any new projects or investment. As a result, dividend payments can come out of
the residual or leftover equity only after all project capital requirements are met.
2. Stable Dividend Policy
Companies using the stable dividend policy choose to give the stable fixed income for its
stockholder, so the company will prioritize to pay the fixed dividend first before use its
income for capital expenditure. Companies that use this dividend policy tend to use debt
to finance the investment or new projects need if there is no equity or income left over
after the stable dividend payment. This policy will reduces uncertainty for investors and
provides them with sureness income.
3. Hybrid Dividend policy
Hybrid Dividend policy is a combination between the residual and stable dividend policy.
As the companies will generally experience business cycle fluctuations, they will generally
have one set dividend, which is set as a relatively small portion of yearly income and can
be easily maintained. The companies will offer another extra dividend paid only when
income exceeds general levels and already covered the capital expenditure needs and
meet the optimal Debt & equity ratio. So in this dividend policy, the dividend that
distributed by company are mostly influenced by the net income of the company .
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
From this 3 type of Dividend policy, it will be determined the dividend policy which will
optimize the economic profit of the company and also give the optimum yield for the
shareholder.
4.2.1 Forecasted Financial Statement
To analyze the future optimal dividend policy, there are some aspects that have to be
forecasted in the future. Those Aspects are the company Net Income, Capital
Expenditure, NOPAT, Preferred Dividend, Ending Stock Price and EBIT.
Forecasted EBIT, Net Income, NOPAT and Capital Expenditure
Table (all numbers in IDR billion)
Year
EBIT
2009
2010
2011
2012
2013
CAGR
2014
2015
2016
16,887
21,515
26,484
28,919
28,632
14.11%
32,672
37,282
42,543
Adjusted Ending Stock Price forecasting table
Adjusted Ending
Stock Price
2009 IDR
3,470
2010 IDR
5,455
2011 IDR
7,400
2012 IDR
7,600
2013 IDR
6,800
Average Growth
2014 IDR
2015 IDR
2016 IDR
Year
Net Income
10,040
14,366
17,785
19,421
19,417
17.93%
22,898
27,003
31,844
NOPAT
13,122
17,940
22,723
25,023
23,752
15.99%
27,550
31,956
37,065
Adjusted Ending Stock Price forecasting table
(all numbers in IDR billion)
Growth
Year
57.20%
35.66%
2.70%
-10.53%
21.26%
8,200
9,900
12,000
Capital
Expenditure
7,581
9,429
13,462
13,651
11,833
11.77%
13,226
14,784
16,524
2009
2010
2011
2012
2013
Function
2014
2015
2016
Preferred
Dividend (Y)
16,887
2,404
21,515
2,638
26,484
3,292
28,919
3,321
28,632
2,880
Y=0.066236X+1285
32,672
3,449
37,282
3,754
42,543
4,103
EBIT (X)
EBIT, Net Income, NOPAT and Capital Expenditure for the coming years are forecasted
using CAGR (Compound Annual Growth Rate) in the last 5 years. Ending Stock Price for
the coming years is forecasted using average growth in the last 5 years and Preferred
Dividend for the coming years is forecasted using Linear Regression with EBIT as the
independent variable
4.2.2 Residual Dividend Policy
In this policy the Dividend comes from residual equity after it meets the capital
expenditures need and reaches the optimum Debt to Equity Ratio. Because the company
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
in the condition that the debt level is exceeds the optimal, it not possible to issue
additional debt so the capital expenditure need will all be financed with equity. The
company will prioritize the use of its equity that generated from the net income to fund the
needs of capital expenditure and paying the debt to get the optimal Debt to equity ratio
before paying the Dividend to the common Shareholder.
Residual Dividend Policy Scenario Table (Expressed in IDR
billion unless otherwise stated)
Net Income
Capital Expenditure
Debt Payment
Additional Capital From Debt
Dividend Payment
Total Debt
Total Equity
D/E
NOPAT
Dividend
Preferred Dividend
Interest Expense
EVA
Beginning Stock Price
Ending Stock Price
Capital Gain
Total Shares Outstanding
Dividend per Share
Dividend Gain
Total Yield
2014
22,898
13,226
9,672
54,851
119,414
46%
2015
27,003
14,784
7,882
4,337
46,969
134,198
35%
2016
31,844
16,524
4,284
19,605
51,253
146,437
35%
27,550
3,449
7,548
16,553
31,956
4,337
3,754
6,219
17,645
37,065
19,605
4,103
6,786
6,572
IDR
IDR
6,800 IDR
8,200 IDR
9,900
8,200 IDR
9,900 IDR
12,000
20.59%
20.73%
21.21%
40483553140 40483553140 40483553140
IDR
107 IDR
484
0.00%
1.08%
4.04%
20.59%
21.81%
25.25%
4.2.3 Stable Dividend Policy
With this policy, the company will prioritize to pay the constant amount of dividend every
year before use the equity to finance the capital expenditure and paying debt. The stable
dividend payment will not influenced by anything. Even though the company suffers the
decline in net income, it will not decrease the dividend payment. With the stable Dividend
policy
Dividend Payment Hisory (IDR billion)
2009
4,534
2010
6,477
2011
8,016
2012
8,744
2013
8,744
Stable Dividend
7,303
Payment
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Stable Dividend Policy Scenario Table (Expressed in
IDR billion unless otherwise stated)
2014
22,898
13,226
2,369
7,303
62,154
119,414
52%
Net Income
Capital Expenditure
Debt Payment
Additional Capital From Debt
Dividend Payment
Total Debt
Total Equity
D/E
NOPAT
Dividend
Preferred Dividend
Interest Expense
EVA
Beginning Stock Price
Ending Stock Price
Capital Gain
Total Shares Outstanding
Dividend per Share
Dividend Gain
Total Yield
27,550
7,303
3,449
8,876
7,922
2015
27,003
14,784
4,916
7,303
57,238
134,198
43%
2016
31,844
16,524
2,585
7,303
54,653
156,154
35%
31,956
7,303
3,754
7,876
13,022
37,065
7,303
4,103
7,236
18,423
IDR
IDR
6,800 IDR
8,200 IDR
9,900
8,200 IDR
9,900 IDR
12,000
20.59%
20.73%
21.21%
40483553140 40483553140 40483553140
IDR
180 IDR
180 IDR
180
2.20%
1.82%
1.50%
22.79%
22.55%
22.72%
4.2.4 Hybrid Dividend Policy
This Policy will look like similar with the stable dividend policy. The company will prioritize
to pay the stable dividend which can be easily maintained. The difference is in the stable
dividend policy, if there are any leftover amount of net income after paying stable dividend,
finance the capital expenditure and paying debt until reach the optimal level, the leftover
amount will not be distributed as dividend but will be retained in the equity.
Hybrid Dividend Policy Scenario Table (Expressed in
IDR billion unless otherwise stated)
Net Income
Capital Expenditure
Debt Payment
Additional Capital From Debt
Dividend Payment
Total Debt
Total Equity
D/E
NOPAT
Dividend
Preferred Dividend
Interest Expense
EVA
Beginning Stock Price
Ending Stock Price
Capital Gain
Total Shares Outstanding
Dividend per Share
Dividend Gain
Total Yield
IDR
IDR
2014
22,898
13,226
2,369
7,303
62,154
119,414
52%
2015
27,003
14,784
4,916
7,303
57,238
134,198
43%
2016
31,844
16,524
4,486
10,835
52,752
150,721
35%
27,550
7,303
3,449
8,876
7,922
31,956
7,303
3,754
7,876
13,022
37,065
10,835
4,103
6,984
15,143
6,800 IDR
8,200 IDR
9,900
8,200 IDR
9,900 IDR
12,000
20.59%
20.73%
21.21%
40483553140 40483553140 40483553140
IDR
180 IDR
180 IDR
268
2.20%
1.82%
2.23%
22.79%
22.55%
23.44%
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
4.3
Chosen Dividend Policy
After making 3 scenario of dividend policy which is Residual, Stable and Hybrid, it will be
evaluated and compared among the 3 options which will be the optimal dividend policy for
the company.
Residual
Dividend
Policy
Dividend
EVA
DPS
Total Yield
2014
2015
2016
4,337
19,605
16,553
17,645
6,572
IDR
107 IDR 484
20.59%
21.81%
25.25%
Stable
Dividend
Policy
Dividend
EVA
DPS
Total Yield
7,303
7,303
7,303
7,922
13,022
18,423
IDR 180 IDR
180 IDR 180
22.79%
22.55%
22.72%
Hybrid
Dividend
Policy
Dividend policy comparison table (Expressed in IDR
billion unless otherwise stated
Dividend
EVA
DPS
Total Yield
7,303
7,303
18,243
7,922
13,022
15,143
IDR 180 IDR
180 IDR 268
22.79%
22.55%
23.44%
From figure above, each of the three proposed dividend policy give difference impact to
both Economic profit of the company (EVA) and the total yield for the Investor. With
residual dividend policy the Economic profit of the company will rise slightly in 2014 to
2015 but then will fall down in 2015 to 2016. The total yield for investors with this policy
will rise each year from 2014-2016. Different from residual dividend Policy, Stable and
hybrid dividend policy make the Economic Profit of the company will rise in each year from
2014-2016. In 2014-2015 stable and hybrid dividend policy make same amount of
economic profit but at 2016 Stable dividend policy make greater economic profit for the
company then hybrid dividend policy. For the total yield, stable dividend policy will
experience decrease in total yield through 2014-2016, in contrast with stable dividend
policy, hybrid dividend policy experience slight increase through 2014-2016. From this
analysis, it can be seen that Hybrid dividend policy will be preferable for the company in
long term because its make constant growth in both Economic profit of the company and
the total yield for the Investor. Residual Dividend policy will give huge growth in the total
yield but it will experience decrease in economic profit. Stable Dividend policy will make
growth for the company’s economic profit but will not give a growth of total yield for the
investor. Stable Dividend policy also tends to be bad for long term because the investor
certainly demand for increase in the dividend with respect to growth of the net income of
the company
5. Summary and Conclusions
Different Dividend Policy will make different Economic Profit of the company. It will also
make different total yield or total return for the shareholders. Residual Dividend policy
seems to be maximizing the growth of total shareholder returns and Stable Dividend
Policy seems to be maximizing the growth of company’s economic profit in the future.
Although this 2 policy are good in one aspect, the optimal dividend policy for the company
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
will be the Hybrid Dividend policy because it’s balancing the company’s economic profit
and total yield or total return for the shareholders. For the long term, this policy is the best
because this policy results in growth of those 2 aspects which are company’s economic
profit and total yield or total return for the shareholders. Residual dividend policy will
maximize growth in company’s economic profit but it suffer decline in total return for the
shareholders, vice versa, stable dividend policy will maximize growth in total return for the
shareholders but it suffer decline in company’s economic profit.
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