Nestlé Company: Constant Payout Ratio Analysis

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The dividend pattern that indicated by Nestlé Company is constant payout ratio. Graph 1, it illustrates the earnings per share and dividend per share of the Nestlé Company from year 2012 to year 2016. When the earnings per share of the company increase, the shareholders will receive more dividends as the dividend per share increasing. Earnings per share refer to the net income of a company allocated to each share of its common stock. It also can be a ratio to measure on how profitable a company in per share of its stock. Dividend per share represents the amount of dividend calculated in per share basis that receive by the shareholders. It is the sum of declared dividends that issued by a company for every ordinary share outstanding. In constant…show more content…
Hence, the retained earnings are then automatically used for internal financing when the company go for this type of dividend policy. In this policy, whatever how many percent of payout ratio is given by the company, the amount of dividends and retained earnings will increase when the net income is increase. So, it indicates that the amount of dividends will become lesser if the net income of that particular year is decrease. However, one of the most appealing features in this policy is that is its conservatism and its guarantee against over or under payment. If there is a loss incurred by the company in that financial year, the management are allowed not to pay any dividend to their shareholders. In other word, the management are not allowed to forego a dividend if there is a profit earned by the…show more content…
A newly formed company may needs to retain major part of earning that use for future growth or expansion purpose. So they may pay lesser dividends or sometimes zero dividend to their shareholders in order to keep the earning to run the business operation. Nestlé Company founded in 1866 and had already celebrated its 150th anniversary in 2016. Thus, Nestlé Company is unlike a newly formed company that may require most of the earnings for plant improvement or to maintain business growth. By the way, Nestlé as an established company that can pay constant dividends from their reserves to their shareholders. This is because an old company which have attained a longer earning experience, can formulate clear cut dividend policies and may even be liberal in the distribution of

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