project on ptcl

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Dividend stability in Cement industry of Pakistan

Topic: Dividend stability in Cement industry of Pakistan

Group Members:

Zaeem Wajahait Iqbal 5256/FMS/MBA/F11Bilal Jamil 5267/FMS/MBA/F11

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Chapter 1

Introduction of Dividend:Dividend is the amount which firm or company makes payment to their

shareholders. Company pays dividend to its shareholders when its operations go

into profit after deducting their expenses. Mostly companies divide its profit into

two parts, some part of Profit Company distribute it among the shareholders as

dividend and some part of profit reinvested in company’s project.

Mostly companies pay fixed amount of dividend to its shareholders according to

numbers of shares they hold. Companies use dividend as asset not expense

because it attracts the shareholders. Companies mostly fix the date of issuance of

dividends but some time company issues dividend during the year.

Company pays dividend to its shareholders through different ways like cash

dividend, stock dividend and bonus shares but cash dividend mostly used by

company for payment. Company pays reasonable amount of dividend to

shareholder if company is paying high dividend in recent year, due to unexpected

loss may affect dividend payment policy of company and company unable to pay

dividend at previous rate then company has to reduce the amount of dividend. It

will give negative signal in market.

Mostly Management of companies pay low amount of dividend to avoid this

problem. There are shareholders have two types of motives like to get dividend or

get capital gain.

Introduction of Dividend Stability:

Profit generated by company does not remain same all the time. It may changes

over period of time due many reasons. From investors point of view they need

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dividend on regular basis or profit on their investment. For satisfying the

shareholders company need to make stable dividend policy.

Some time company may go into loss and company is unable to pay dividend to

its shareholders. It gives negative signal in market and it may affect financial

performance and shares prices of company. For creating Goodwill among the

shareholders and potential investors company need to establish stable dividend

policy.

In our project we will check dividend stability in cement sector of Pakistan

weather in this industry companies maintain stability in their dividend or not.

Introduction of Cement sectors:

Cement industry of Pakistan is considered as most important industry because its

growth rate is high as compared with other industries. Both domestically and

International demand for Pakistani cement is increasing day by day. Following

companies are listed at stock exchange

1. Attock Cement

2. Cherat Cement

3. D.G.K Cement

4. Dadabhoy Cement

5. Dondot Cement

6. Dewan Cement

7. Fauji Cement

8. Fecto Cement

9. Flying Cement

10. Gharibwal Cement

11. Kohat Cement

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12. Lucky Cement

13. Maple Cement

14. Pioneer Cement

For analysis of our project we have selected five companies which are actively

traded in stock exchange and we will check dividend stability of these companies.

Following are selected companies.

1. Attock Cement

2. Facto Cement

3. Lucky Cement.

4. Cherat Cement

5. Kohat Cement

Overview of selected companies

1. Attock Cement Pakistan Limited:

Attock Cement Pakistan Limited (ACPL) is group member of Pharaon group of

companies doing operation in Pakistan. It was established in 1981 by the joint

venture of Pak Saudi and its initial investment was 1.5 billion in addition 45

million$ US dollars. ACPL manufacturing plant is located in Lasbela,

Balochistan. ACPL was listed at stock exchange Karachi in 2002.

Attock Cement has different types of products

1) Falcon Cement.

2) Ordinary Portland cement.

3) 3) Sulphate Resistant Cement.

4) 4) Block Cement.

5) 5) Portland Blast Furnace Slag Cement.

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ACPL sale revenue in 2013 was 11508 Rs Millions and there was 10% increase in

sale revenues as compare with 2012. Gross profit of ACPL was 3535 Rs millions

in 2013 which was more than 26% last year. Earnings per share of company are

21.45 which are 49 more than last year.

2. Fecto Cement.

Fecto Cement Company is owned by Fecto Group and this group is doing

business in different industry like cement, tractor plan and sugar mill etc. Fecto

cement plant is located near Islamabad in sangjani. It is listed at Karachi stock

exchange. It’s performing well in the industry by last two years. In FY 2013 net

sale of company is Rs. 4588 million, gross profit is Rs. 1257 million and earnings

per share is Rs 11.63.

3. Lucky Cement Limited:

Lucky cement limited was founded in 1996 and it is located in Karachi and KPK.

It is largest producers and exporter in the industry. It is listed in all stock

exchanges of Pakistan. It is growing at fast rate. In the year of 2013, company’s

net sale was Rs. 37,810 million, profit of company is Rs. 9713 million and

earnings per share 30.04.

4. Cherat Cement:Cherat cement was established in 1981and it is well know is the Pakistani cement

industry. This company is listed in all three stock exchanges of Pakistan. It is

located in Nowshera, KPK. This company is largest supplier and producers in the

KPK and Punjab. Cherat cement is exporting cement to other countries specially

Afghanistan. In FY 2013 net sale of company is Rs 6294 million, gross profit is

Rs 2186 and earnings per share is Rs 4.54.

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5. Kohat Cement

State cement of Pakistan (SCCP) was established in the year of 1984 in Kohat. It

was privatized by Govt through open bidding in 1992.it was listed at stock

exchange in the year of 1994. Kohat cement started export cement in addition

with domestic market. In the year of 2013, Kohat cement’s net sale was Rs 11,297

millions, gross profit of company was Rs 4361 million and its earnings per share

was 20.45

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Chapter 2

THEORETICAL FRAMEWORK

2.1 Types of Dividend payment:

There different types of dividend payments

Cash Dividend:

In cash Dividend, payment is made to shareholders in form of cash from current

company profit after its operation. It is most commonly used mode of payments.

On date of declaration of dividend board of directors fixed or settled the amount

of dividend that should be given to shareholders. Shareholders pay taxes on

dividend received. For example if Mr. A hold 1,000 shares of company and

company announced to give dividend Rs.2 per share. Mr. A will receive total

dividend of amount Rs.2, 000.

Stock Dividend:

In stock dividend, company issues stock or share to its common shareholders.

When company is short in availability of cash supply then company decide to

give or issue stocks to the shareholders. Mostly stock dividend is paid by some

big companies.

Company issues stock dividend to common shareholder according to numbers of

shares they owned already. For example if Mr. A hold 1000 shares of company

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and company decided to give 5% stock dividend to shareholder. Mr. A will

receive 50 shares extra as stock dividend.

Scrip Dividend:

This type of dividend is paid when company is unable to pay cash dividend.

Company may have not sufficient funds in near future to pay dividend. Company

issues promissory note which gives the guarantee that company will pay dividend

when it will go into profit. This dividend treated as Note payable.

Property Dividend:

In property dividend, company makes dividend payment to its shareholders in the

form of Assets instead of cash dividend, stock dividend and scrip dividend. For

example company may distribute its products or stock or other companies through

investment. Those shareholders receive property dividend they should pay tax on

fair market value.

Other Dividend:

Other dividend means company sometime distribute financial asset those have a

good market value among the shareholders. For example if a company open its

subsidiary then it will give the share of new subsidiary to parents company’s

shareholders.

Bonus share:

Extra shares are given by company to its shareholders without any additional

amount is known as bonus shares. Basic motive of bonus share is to use excess

reserve and it also called capitalization of company’s excess reserve and profit.

These bonus shares are issued to existing shareholders according to they owned

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already numbers shares of company. It does not affect on capital structure of

company.

Date:

Date has very important role when company pays it to share holders. Date is

approved by board of directors when company would pay dividend. Date has four

types which are discussed blow.

Declaration date:

In general meeting, the company’s board of directors decided when would

company is going to announce to pay dividend in this year. Board of directors

also announces the size of dividend or amount of dividend. Company

management opens account in their books, by mentioning that the amount will be

paid to shareholders.

Record date:

Record date is the date on which name of shareholders who are going to receive

dividend. These are the person who will receive dividend announced on date of

declaration by board of directors. This person is known as holder of record.

Ex Dividend Date:

Ex dividend is the date on which if person sale his shares to another person. After

declaration of dividend seller will receive dividend not new buyer of shares. Here

is very important thing is that this date is before record date.

2.3 types of Dividend policiesThere are four types of dividend policies.

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Regular Dividend Policy:

In the regular dividend shareholders of company get dividend on regular or

routine bases. Normally in this type of dividend, investors of company belong

from weak section of society and their basic objective is to get dividend or income

on the regular basis. Regular dividend is given by big companies who have long

standing and stable earning. These companies are normally give low rate of

dividend as compared to average earning of company.

Stable Dividend Policy:

Stable dividend policy means that stable amount is given to shareholders as

dividend.

Profit generated by companies after their operations do not remain same in every

year. It may fluctuate due to different circumstances of economy. For the investor

point of view they need regular dividend they need profit on the regular basis. To

satisfying the shareholders, company needs a regular dividend payment policy.

Sometimes company may suffer losses and unable to pay dividend to its

shareholders. It gives negative signal in market and it may also affect on financial

performance and share prices of company.

For creating Goodwill among the shareholders and potential investors company

should keep balance in paying dividend because company needs regular income

and return. There are three reasons for which companies pay stable dividends.

By paying stable dividend to shareholders company’s stock price will

increase.

In present, world is like a global village where information travel within

seconds. In financial sector there may be positive and negative

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information about company and this information also affect the

performance that why company gives stable dividend to shareholders to

avoid this problem.

Investor wants more and regular income from their investment, for

attracting the investment company needs to give stable dividends.

Residual Dividend Policy:

Residual dividend policy means that dividend is given to shareholders after

meeting all capital requirement of company and accepting all investment

opportunities. Residual dividend policies normally used by companies those want

relay on the internally generated equity to finance their news projects. Residual

dividend policies maintain balance between debt and equity. There is an important

point is that if equity of company is more than its retained earnings than company

will not pay dividend to its shareholders.

Constant dividend payout Ratio Policy:

In Constant dividend payout ratio policy mostly companies fix certain percentage

of profit for the payment of dividend to its shareholders. For example it can be 5%

or 10% of their profile of company.

When company goes into profit then it will dive dividend to its share holders

other view company will not dividend to its shareholders. This policy may be

risky and uncertain. Companies don’t use this policy because share price does not

remain stable.

Hybrid Dividend Policy:

Hybrid dividend policy is combination of both residual dividend policy and

constant dividend policy this policy mostly used for long term goal. Normally this

policy is used by the companies those have fluctuation in their earnings. This is

balance policy because it can maintain stability in dividend.

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2.4 Impact of dividend stability:

Stable dividend has great impact on the company performance. For creating

goodwill among the existing shareholder and potential investors of company gives

stable dividend to its shareholders. Shareholders want regular dividend for

meeting their financial requirements.

Stable dividend has long term impact on the company in different ways and also

stable dividend useful for company’s share price because it has positive impact on

the share price because if company is give stable dividend to its shareholders then

its reduces the speculation in market regarding the share prices of company.

Stable dividend policy of company attracts the investors because they want

regular income.

2.5 Factors effecting dividend policy:

Legal requirement

There is guideline available in the company act 1956 regarding the dividend

policy of company. In the law dividend distribution is among the shareholders in

not compulsory. But this act tells the way how to distribute the dividend and there

are three ways of dividend distribution among the shareholders when company

goes into profit.

Liquidity:

Liquidity is very important for making decision regarding dividend distribution.

When company goes into profit or have a extra profit then it will pay dividend to

its shareholders as cash dividend and stock dividend.

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Trade cycle:

Economic condition may affect the dividend policy of company. Decision

regarding dividend should be taken according to economic conditions of country.

When company earns profit then it puts profit into the reserve the meeting

requirement in the inflation time. In the during low economic condition company

pays dividend to shareholders and it gives good signal in the market to investors

for attracting investment.

Stable earning:

Stable earning has great impact on dividend policy. Those companies have regular

income they adopt stable dividend policy as compared to those companies have

irregular income.

Need of additional capital:

Some companies have good financial position due to large profit because

company uses it profit to meet working capital requirement then they want to

expend their business. Small companies need additional capital to meet both

expenses and payment of dividend to shareholders.

Govt policies:

Govt policies also affects dividend polices of companies because due to change in

industries policy, economic policy may diatribe it. Especially in Pakistan energy

crisis has affected because due to it cost of product increase which leads to

increase price of goods. Company need to keep in the mind all effectors and

policies while making dividend policy.

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Chapter 3:

Calculation and interpretation:

Earning per shares:

When a company has more revenue than its expenses after paying taxes, it’s

called basic earnings of company. It is divided by no. of shares to get earning per

shares.

Dividend per Share:

When company goes in profit it announces the amount of dividend for

shareholders of company to know as cash dividend as amount divided by no. of

shares for getting dividend per shares.

Dividend Payout ratio:

It ratio tells us how much portion of profit company distributes among the

shareholders.

Big companies pay large amount of dividend as compared to small companies.

Dividend per Share = Annual Dividend per share / Annual earnings per share

OR

Dividend per Share= dividend /net income

Dividend Yield Ratio:

This ratio shows that the ratio between per share dividend and current price of

share. It tells how much investors can earn from his investment.

Dividend yield ratio = dividend per share/current share price

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Dividend Coverage Ratio:

This tells us a company how many times covers dividend from its earning. High

coverage ratio is suitable for company and also very attractive for the new

investment.

Dividend coverage ratio = Earnings per share / dividend per share

Analysis:

Attock Cement:

Date Earnings per

share

Dividend per

share

Dividend

Payout Ratio

(%)

Dividend

Yield Ratio

(%)

Coverage

Ratio

2009 17.24 5 29 7.14 3.45

2010 11.74 5 42.59 7.57 2.35

2011 7.9 4.5 55.96 9.18 1.6

2012 16.59 8.5 51.23 9.85 1.95

2013 21.45 13 60.61 9.85 1.65

Interpretation:

Earnings per share of Attack cement company is showing positive trend in FY

2009 and in next two coming FY 2010 and 2011 earnings per share start

decreasing due to financial crisis but earning per share remain positive. Earnings

per share of FY 2012 and 2013 started increase as compared with previous

financial years because of increase in demand of Cement in market due to

increase in construction of building and projects that’s why company earnings per

share increased.

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Dividend per share of Attock Cement is very excellent as compared with other

companies in the industries. In the FY 2009 and 2010 company give same

dividend per share is Rs 5 but in the FY 2011 Company give Rs 4.5 which

considerable because in the FY 2011 Company performance was not good as

compared with previous years. But Company once again gave more dividend per

share as with previous years in the FYs 2012 and 2013

From the FY 2009 to FY 2013 Company started share more profit with its

shareholders 29% to 60.61% which is good for shareholders and attractive form

new investors. Shareholders got very good dividend yield (7.14% to 9.85) from

FY 2009 to 2013. This is very good sign for new investors.

Attock Cement Company covers its dividend cost reduced from 3.45 times to 1.65

times which shows company is performing well.

Kohat Cement:

Date Earnings

per share

Dividend

per share

Dividend

Payout

Ratio (%)

Dividend

Yield Ratio

(%)

Coverage

Ratio

2009 0.21 0 0 0 0

2010 -2.55 0 0 0 0

2011 0.49 0 0 0 0

2012 12.9 3.0 23 0.300000215 4.299996916

2013 20.45 4.99 24 0.499999841 4.090001302

Interpretation:

Kohat Cement company earnings per share are Rs. 0.21 in FY 2009 but earnings

per share in FY 2010 become negative due to financial crisis. In the FY 2011 to

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FY 2013 earnings per share of company starts increasing (0.49 to 20.45) because

company earned profit. From the year 2011 to 2013 cement demands increased

that’s why company showed profit in these years.

Kohat Cement Company has not given dividend to shareholders due financial

crisis and in the financial years of 2012 to 2013 companies gives dividend to its

shareholders Rs 3 and Rs 4.99 respectively. In first three years company did not

gave dividend but in FY 2012 and 2013 company give dividend to shareholders

and company has distributed profit with the ratio of 23% and 24% respectively.

Investors have earned profit on their investment in years of 2012 and 2013 with

ratio of 30% and 50% respectively.

Fecto Cement:

Date Earnings

per share

Dividend

per share

Dividend

Payout

Ratio (%)

Dividend

Yield Ratio

(%)

Coverage

Ratio

2009 6.27 0.869054825 0.100 0.0869054825

2010 -4.15 -- -- -- --

2011 1.3 -- -- -- --

2012 6.91 0.591172249 0.100 0.016421451 11.68864069

2013 11.63 1.407432217 0.150 0.03703769 8.263275389

Interpretation:

Fecto cement Earning per share is 6.27 during the year 2009.which is

considerable. With the inverter point of view, investor will prefer to invest Fecto

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cement. Fecto cement has o.86 in the FY 2009 dividend per share company’s

position is quite good during this year. Fecto cement has Dividend payout ratio is

10% during the 2009 which is remarkable. Dividend yield ratio is 0.086% it

shows that how much investor can earn from his investment. Investor should

consider this sort of investment. Fecto cement has 7.21 coverage ratios. It shows

company is at high coverage. Investor should go for investment in this company

and it is suitable for investment.

Fecto cement has negative earnings in FY of 2010 that show company is going in

the losses. So company does not pay any dividend. From the investor point of

view it is not suitable for investment. In 2011, Fecto cement got profit but

company didn’t declare the dividend for the shareholders. Being an investor it is

not prefer to invest in Fecto cement this year. Fecto cement earning per share is

6.91 during the year 2012.and shows positive trend in profits. This is

considerable. Being an investor he will prefer to invest Fecto cement. Fecto

cement has 0.59 in 2012, in term of dividend per Share Company’s position is

quite good during this year as compare to last year. Fecto cement has Dividend

payout ratio is 10% during the 2009 which is remarkable. Dividend yield ratio is

0.016% and it shows that how much investor can earn from his investment.

Investor should consider this sort of investment. Fecto cement has 11.68 coverage

ratios. It shows company is at high coverage after 2 consecutive years. Investor

should go for investment in this company .it is suitable for investor.

In FY of 2012, Fecto cement got more earnings in 2013. Company pays more

dividends per share and gave more payout ratio. But his coverage ratio is 8.26

which is less as compare to last year but not as much less as ignorable by the

investors. So in 2013, investor would like to invest in Fecto cement

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Cherat Cement:

Date Earnings

per share

Dividend

per share

Dividend

Payout

Ratio (%)

Dividend

Yield Ratio

(%)

Coverage

Ratio

2009 1.67 -- -- -- --

2010 -0.14 -- -- -- --

2011 0.72 -- -- -- --

2012 4.57 2.50 0.44 0.07 2.29

2013 12.81 2.00 0.20 0.04 5.12

Interpretation:

In The FY of 2009, Cherat cement has earning per shares is 1.67 which is good

but not enough to pay dividend to the dividend to the shareholders in both FY of

2010 and 2011. Company didn’t pay the dividend. That’s why the investor will

not prefer to invest in Cherat cement in these 2009-2011 years Cherat cement got

profit in 2012, and in 2013, Cherat cement has 12.81% which is very high which

is positive indication. Company has high earning per share and it paid high

amount of dividend also which shows that company will show some stability in

his dividend policy in coming years.

Cherat cement has 0.44% dividend payout ratio. But decreases in next year. This

ratio tells us how much portion of profit company distributes among the

shareholders this ratio is quite good for the investor point of view. Cherat cement

has 0.07% dividend yield ratio. It shows that how much investor can earn from his

investment. Investor should consider this sort of investment. Company has

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dividend yield ratio is 2.29 which is good for the company. Actually it tells how

much investor can get earning from his investment.

Lucky Cement

Date Earnings

per share

Dividend

per share

Dividend

Payout

Ratio (%)

Dividend

Yield Ratio

(%)

Coverage

Ratio

2009 14.21 4 28.51 3.81 3.55

2010 9.70 4 41.23 5.20 2.43

2011 12.28 4 32.58 5.65 3.07

2012 20.97 6 28.61 6.44 3.50

2013 30.04 8 26.63 6.85 3.75

Interpretation:

Lucky cement company earnings per share are very good as compared with others

companies in the industry. In the FY of 2009 EPS is Rs 14.21. In coming next two

years FYs 2010 to 2011 ESP are less but remains positive and Lucky cement

earnings per share in FYs of 2011 to 2013 starts in increasing which shows

remarkable growth in earnings. Lucky cement per share is high as compared with

others companies.

Dividend per share of company is Rs 4 for FYs 2009 to 2011 is same which is

very good for investors. In FYs 2012 to 2013 company give more dividends per

share which is Rs 6, Rs 8 respectively. This company is giving more dividends as

compared with other companies in the industry. This company is paying

reasonable amount of profit to its share holder and shareholder are getting good

return or yield on their investment.

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Comparison:

There is no stability in Cement sector of Pakistan. There are many reason of not

paying dividends to its shareholder every year because many companies’ profits

fluctuate in the term of profit and loss. Due recent financial crisis cement sector is

also affected but from FY 2011 to present companies are growing. However there

are some companies Like Lucky Cement, Attack Cement and Maple Cement have

very good growth rate in Sales and Profits of companies. Attack Cement and

Lucky Cement, both of these companies try pay dividend to their share holders.

Luck Cement Company is performing well in the industry and this company tried

to pay every year. From the FY 2009 to 2013 LC paid Rs 4,4,4,6 and 8

respectively with stable growth. Which is excellent dividend in industry .Attack

Cement also performs well in the market and its earning and profits are growing

every year and this company paid dividend from FY 2009 to 2013 is Rs 5, 5, 4.5,

8.5 and 13 which is high dividend in market expect FY 2011.

On the other hand DGK Cement and Maple Cement have positive growth rate in

sale and profits but these companies are not paying dividend to its share holders

every year. So payment of dividend is not important for growth of company.

Cement sector of Pakistan started performing well from FY 2012, due some

companies started paying dividend to its shareholder. This is good sign form

Pakistan economy.

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Chapter 4:

4.1 Conclusion: Dividend is very important for every company and it shows performance of

company. It is very important for company to determine impact of stable dividend

and it should be kept in mind while making decision regarding future plan of

company. Stable dividend plays very important role in creating good will of

company among the shareholders by giving positive signal in the market. High

payout ratio shows that company is sharing more profits with shareholders and it

indicates that company’s earnings are increasing due to this vale of company

share price is increasing.

New investors before investing see all these important things related to company

because all these effecters affect in both short and long term decisions. In the

cement industry Lucky Cement and Attock Cement performance are excellent

these company fulfilling demand of local market and international market. These

companies are paying good and regular dividend to its shareholders

What so ever Stability of dividend is very important for the progress of company

but in this project there rare companies are paying stable dividend to its

shareholders like Lucky Cement and Attock cement. Most of the companies are

not paying dividend to its shareholders only four company paying dividend to

shareholders but not regular except Lucky cement and Attock cement.

project on ptcl

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