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Economic Analysis: Theory and Practice

A method to analyze the corporate payout policy

Vol. 15, Iss. 3, MARCH 2016

PDF  Article PDF Version

Received: 22 January 2016

Accepted: 4 February 2016

Available online: 29 March 2016


JEL Classification: G11, G32

Pages: 57-69

Kogdenko V.G. National Research Nuclear University MEPhI, Moscow, Russian Federation

Importance The article addresses the algorithms of payout policy, including the dividend policy and share buyback policy.
Objectives The aim is to develop analytical procedures to assess the impact of the payout policy on the company's financial condition, investment activity, fundamental value and capitalization.
Methods Objective principles of the systems approach, basic tenets of economic analysis, logical and comprehensive approach to the assessment of of economic phenomena and processes form the methodological framework of the study.
Results The method to analyze the payout policy includes four stages. At the first stage, the key indicators of the payout policy are analyzed, i.e. payments to shareholders, profit distribution proportions, dividend yield, which enable to assess the scale of financial resource withdrawal from the company and determine the payout policy direction. The second stage focuses on assessing two major implications of the payout policy, i.e. its impact on company's liquidity and solvency and investment activity. At the third stage, the impact on fundamental value drivers is assessed, namely, WACC, sustainable growth and ROIC. The fourth stage deals with the analysis of the policy's impact on market capitalization and substantiation of the conclusion on how market reacts to an increase or decrease in dividends per share and in retained earnings, and determines the total return on investment in the company's shares.
Relevance I developed algorithms of the corporate payout policy analysis. The article may be useful for experts of financial services, who are involved in financial decision-making under economic crisis.

Keywords: payout policy, dividend policy, analysis, fundamental analysis


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