Explanation, Policy, Dividend Distribution Strategy and Market Reaction Dividend Announcement

Dividends are part of the company's profits that are distributed to shareholders. 

Dividends in the world of stock investing are the portion of a company's profits that are distributed to shareholders.  So, if the company is profitable, its shareholders are entitled to receive a portion of that profit. This dividend distribution is not automatic. Companies must first decide whether or not they want to distribute their profits. This decision is usually made at the General Meeting of Shareholders (GMS).

There are a few things to note about dividends:

Type of dividend: Dividends can be distributed in cash (money) or shares.
Important dates: There are several important dates related to dividends, such as the cum-dividend date (the last date to be entitled to receive dividends), the ex-dividend date (the date on which share buyers are not entitled to receive dividends for that period), and the dividend payment date.
Dividend payout ratio: This is the ratio of how much of a company's profit is distributed as dividends.
Investors who expect regular income from stock investments are usually interested in companies that regularly pay dividends. However, long-term oriented investors may prefer companies that use their profits for expansion rather than distribution as dividends.

 

in this case, there must be some reaction from investors/market if the dividend announcement is announced.

Investor reactions to dividend announcements can vary, depending on several factors, including:

1. The size of the dividend increase:

Dividend Increase:
Positive: Investors are excited at the prospect of receiving higher earnings. The share price could potentially rise and trading volumes increase.
Neutral: Investors reassess the intrinsic value of the stock based on its value after factoring in the dividend payment.
Dividend Decrease:
Negative: Investors are disappointed at the prospect of receiving lower earnings. The stock price potentially falls and trading volume increases.
Neutral: Investors reassess the intrinsic value of the stock based on its value after factoring in the lower dividend payout.
Fixed:
Neutral: Investors reassess the intrinsic value of the stock to see if the value is still in line with their expectations.
Positive/Negative: Depends on the investor's prior expectations. If the initial expectation was an increase in dividends, then investors may react negatively. Conversely, if the initial expectation was a decrease in dividends, then investors may react positively.

2. Financial Condition of the Company:
-Strong:
Positive: Investors are more optimistic even if the dividend does not increase.
Neutral: Investors keep reassessing the intrinsic value of the stock.
-Weak:
Negative: Investors may sell their shares even if dividends go up.
Neutral: Investors continue to reassess the intrinsic value of the stock but with more caution.

3. Company Dividend Policy:
-Consistent:
Positive: Investors can more easily predict their future earnings and tend to be calm.
Neutral: Investors keep reassessing the intrinsic value of the stock.
-Inconsistent:
Negative: Investors have a harder time predicting their future earnings and tend to panic.
Neutral: Investors continue to reassess the intrinsic value of stocks but with more careful consideration.

4. Macroeconomic Conditions:
-Stable:
Positive: Investors tend to take more risks.
Neutral: Investors continue to reassess the intrinsic value of stocks.
-Unstable:
Negative: Investors tend to be more cautious.
Neutral: Investors continue to reassess the intrinsic value of the stock but with more caution.

Of all these, dividends will also be canceled, and this will also cause a reaction for investors.

In general, dividend cancellation announcements by companies will have a negative impact on the market. This is because investors will be disappointed at the prospect of receiving lower earnings from their investment.

The following are some of the possible consequences:

1. Decrease in Share Price:
Investors sell their shares because they no longer expect dividend income.
Massive share sales lead to a decline in share prices.

2. Increase in Trading Volume:
Investors who are disappointed with the dividend cancellation may sell their shares quickly.
This leads to an increase in the trading volume of the stock.

3. Loss of Investor Confidence:
Cancellation of dividends may undermine investor confidence in the company.
Investors may no longer be interested in investing in the company.

4. Negative Impact on Company Reputation:
Cancellation of dividends can tarnish the company's reputation.
This may make it difficult for the company to raise funds in the future.

FACTORS AFFECTING DIVIDEND POLICY IN MANUFACTURING COMPANIES

Dividend policy is the company's decision regarding how much profit will be distributed to shareholders in the form of dividends, and how much will be retained to reinvest in the business.

In manufacturing companies, some of the main factors that can affect dividend policy include:

1. Profitability:
-High profitability: Companies that have high profits tend to pay out larger dividends to their shareholders.
-Low profitability: Companies that have low profits tend to pay out smaller or no dividends.

2. Capital Requirements:
-High capital requirements: Companies that have high capital requirements for investment and business growth tend to retain more profits and pay out smaller dividends.
-Low capital requirements: Companies that have low capital requirements tend to pay out larger dividends to their shareholders.

3. Capital Structure:
-High debt level: Companies with high debt levels tend to pay smaller dividends to maintain financial health and reduce financial risk.
-Low debt level: Companies with low debt levels tend to pay out larger dividends to their shareholders.

4. Past Dividend Policy:
-Consistent: Companies that have a consistent dividend policy are likely to maintain that policy in the future.
-Inconsistent: Companies that have an inconsistent dividend policy tend to change their policy depending on company conditions.

5. Investor Expectations:
-High expectations: Companies that have investors with high dividend expectations tend to pay out larger dividends.
-Low expectations: Companies that have investors with low dividend expectations tend to pay out smaller dividends or none at all.

6. Macroeconomic Conditions:
-Stable: Stable macroeconomic conditions tend to make companies more willing to pay dividends.
-Unstable: Unstable macroeconomic conditions tend to make companies more cautious in distributing dividends.

STRATEGIES FOR DIVIDEND DISTRIBUTORS

Dividend strategy is an approach designed by a company to determine how much profit will be distributed to shareholders in the form of dividends, and when those dividends will be distributed.

The main objective of the dividend strategy is to balance the needs of shareholders who want current profits with the company's need to invest in the future and increase growth.

Types of Dividend Distribution Strategies:
Constant dividend policy: Distributes a fixed dividend per share every period.
Dividend payout ratio policy: Distributes a certain percentage of net profit as dividends.
Residual dividend policy: Distributing the remaining profit after reinvesting it for capital needs.
Special dividend policy: Distributing dividends once only or within a specific period, usually linked to a special event such as the sale of assets or the achievement of certain targets.

 
Choosing the Right Dividend Distribution Strategy:
-Consider the factors mentioned above.
-Analyze the company's capital requirements and growth prospects.
-Adjust the dividend strategy to investor expectations.
-Monitor and evaluate the dividend strategy regularly.

Impact of Dividend Strategy:
Stock price: High dividends can increase the stock price.
Investor confidence: A consistent dividend policy can increase investor confidence.
Capital structure: High dividends can lower the debt-to-equity ratio.
Company growth: Low dividends can allow the company to invest more in growth.

 
Example of Dividend Distribution Strategy:
High growth company: Set a low payout ratio to finance expansion, and increase dividends gradually as profits grow.
Mature companies: Implement a constant dividend policy to provide stable income for investors.
Companies with profit fluctuations: Implement a residual dividend policy to adjust dividends to varying profitability.
It is important to remember that the right dividend strategy will vary for each company. Companies should consider their unique situation and goals when choosing the optimal strategy.