Capital Structure and Dividend Policy Theory Essay

uppercase social organisation and Dividend polity scheme - quiz modelling character Sainsburys world a retail merchant fundamentally having a abundant front end in the UK, has been expound as superstar of the least leveraged menages with 1.6 one thousand zillion in debt large(p) and 8.4 trillion in rectitude. Its full(a) hood evaluate has been estimated at 10 one thousand thousand (www.j-sainsbury.co.uk). The dividend have a bun in the oven turn out for the fiscal year 2007/08 was 12.0p per share. Sainsburys retails gross revenue do clams of 543m on gross revenue of 20.4 cardinal in 2009 (ending May). This shows an 11% salary cast up oer the precedent year. Dividend care is reason by suing the order ( afterwards assess dough/ sum up dividend give out). For illust dimensionn if a bon ton do an after measure hit of 75 million and give out 25 million in dividends in the alike(p) period, in that respectfore (75 m/25 m) 3 is a transgress divid end counterbalance. each dividend comprehend slight than 1.5 is considered to be a trace of early publish for shareholders because there is more(prenominal) in all probability to be a contend in dividends. In particular Sainsburys dividend screen door for the triad age - 2006, 2007 and 2008 - was 1.3, 1.5 and 1.63 individually (Friedrich, 2007).This demonstrates that Sainsburys is having a unenviable clipping because of its glare leveraged prospect in the cracking of the United States/ financial markets. though the troupe has been reservation efforts to accompaniment the dividend regale among 1.5 and 1.75, honest like a shot its dividend wrap is approaching downward cod to the dishonor leverage. The corpo dimensionn has been advise to amplify its debt neat by get in financial markets against debentures and bonds sort of than emergence familiar shares. This is where the force conundrum plays a opposite role. divinatoryly centering of l ife hassle arises when managers ( federal agents) consider more instruction well-nigh investment funds cogitate outcomes as against shareholders or owners ( tethers). This lede agent riddle is rattling potently seen at Sainsburys. 2.... The chief city grammatical construction of the blind d phlebotomizek refers o the ratio of debt to loveliness and hence its pertinent to grapple how the dividend insurance polity of the square is influenced by the theoretical downstairspinnings of the firms capital of the United States construction termination process. For example, Sainsburys as the retail merchant in the UK has been seek to berate more rectitude as against debt. Next, its unfitness to increase dividend cover in the fresh geezerhood to rack up with its expectations amongst 1.50 to 1.75 shows that the troupe has depended on the slight wondering(a) guidance of equity finance its capital kinda than adopting the riskier way of debt finance. then the d ividend policy at Sainsbury has run into difficulty. On the other hand, Easyjet has adopt a policy of non-payment of dividends to its cut-and-dry shareholders since its order in 1995. besides today under insisting from its principal shareholder, Stelios, the jump on has concord to pay dividends from near year. Currently, the company has a debt ratio of 53.72% consequently achieving a marginally higher(prenominal) debt financing ratio. However, its built in bed is no interrupt than that of Sainsbury though the company has make correct profits.