Durant Limited is a construction company based in Malawi and has presence in almost seven countries in sub-Saharan Africa . Because of the aggressive government construction programs in the region, the company has seen an increase in its orders and has reached a point where a significant amount of finance is needed to source future growth. The board recently decided to list the business on the Johannesburg Stock Exchange and is currently examining the full implications of this decision on its operations. The Board Chairperson has argued that a stock exchange listing may alter the way in which the business views their dividend policy. However, the CEO has insisted that the dividend policy is unimportant as the pattern of dividend has no effect on shareholder wealth. Key data on the dividend policy adopted is as follows: Financial year end Profit after tax (K'000) Ordinary dividends (K'000) Ordinary shares in issue (K'000) 2013 1,140 480 1,500 2012 990 550 2,200 2011 1,232 1,056 2,200 2010 2,520 384 3,200 2009 2,800 1,360 3,400 A. Discuss the dividend policy followed by Durant Limited over the past five years. B. Evaluate the views expressed by the Chairperson of the Board and the CEO and discuss the key points to be taken into account when establishing an appropriate dividend policy for a business. Hint: As part of your discussion, refer to the appropriate dividend policy theories.
Durant Limited is a construction company based in Malawi and has presence in almost seven countries in sub-Saharan Africa . Because of the aggressive government construction programs in the region, the company has seen an increase in its orders and has reached a point where a significant amount of finance is needed to source future growth. The board recently decided to list the business on the Johannesburg Stock Exchange and is currently examining the full implications of this decision on its operations. The Board Chairperson has argued that a stock exchange listing may alter the way in which the business views their dividend policy. However, the CEO has insisted that the dividend policy is unimportant as the pattern of dividend has no effect on shareholder wealth. Key data on the dividend policy adopted is as follows:
| Financial year end | Profit after tax (K'000) | Ordinary dividends (K'000) | Ordinary shares in issue (K'000) |
| 2013 | 1,140 | 480 | 1,500 |
| 2012 | 990 | 550 | 2,200 |
| 2011 | 1,232 | 1,056 | 2,200 |
| 2010 | 2,520 | 384 | 3,200 |
| 2009 | 2,800 | 1,360 | 3,400 |
A. Discuss the dividend policy followed by Durant Limited over the past five years.
B. Evaluate the views expressed by the Chairperson of the Board and the CEO and
discuss the key points to be taken into account when establishing an appropriate
dividend policy for a business.
Hint: As part of your discussion, refer to the appropriate dividend policy theories.
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