Dividend policy Analysis(Eicher Motors)Dividend is a payment made by a company to its shareholders usually as a distribution of profits. When a company makes profit it can either re-invest it in the business or it distributes it to its shareholders by way of dividends. The dividend payout ratio is the amount of dividends paid to shareholders relative to the amount of total net profit of a company.A reduction in dividends paid is not appreciated by investors and usually the stock price moves down as this could point towards difficult times ahead for the company. On the other hand a stable dividend payout ratio indicates a solid dividend policy by the company's management.

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PBT 363.15173.8142.2786.78-48.51

Reported Net Profit278.62144.76124.5575.4437.53

Shares in issue (lakhs)270.39270.01269.93269.38126.6

Earning Per Share (Rs)103.0453.6146.1428.0129.64

DPS(Rs)302016117

Equity Dividend (%)30020016011070

Book Value (Rs)303.76232.97200.07169.53306.85

Dividend payout ratio0.2911490.3730650.3467710.3927170.236167

The company has tried to maintain the dividend payout ratio of around 30-40%, indicating the company have the solid dividend policy. Although from the year 2009 to 2010 company has doubled the shares issue but its dividend per has also increased with increasing earning per share signaling to the investors that company has very good future prospect and its profits is increasing significantly which will contribute to more capital gain in future.

As we can see althouth the net profit in the year 2013 has almost doubled but its has not rolled out the dividend accordingly rather it has lowered the dividend payout ratio from 37.3% to 29.11% signalling its might be retaining earnings for the purpose of more investment and will provide more DPS in the future and the company will be beneficial in the long run for the purpose of capital gain.Market reaction can be seen with with the huge increase in share price from 2013 to 2015 because of its solid dividend policy and the good future prospect.