Question

Conifers Ltd, a tree relocation company, follows a stable plus special dividend policy. The company recently (2020) had earnings available to common shareholders of R500m on sales of R2b and has 250m shares outstanding. The company maintains a stable pay-out ratio of 5% and issues special dividends whenever its net profit margin exceeds 10%. Special dividends amount to all profits exceeding 50% of the amount after the stable dividend had been deducted. Required: Determine the total dividend that Conifers Ltd will pay per share

Answer 1

Earnings available to common shareholders in 2020(Net profit)= R500 million

Sales= R2000 million

Net profit margin= R500 million/R2000 million

= 25%

The net profit margin exceeds 10%, therefore Conifer's Ltd will pay special dividend.

Stable pay out ratio= 5%

Stable dividends= Earnings * Payout ratio

= R500 million* 5%

= R25 million

Special dividend amounts to 50% of earnings after deducting special dividends, i.e. R500 million- R25 million= R475 million

So,

Special dividend= 50%*R475 million

= R237.50 million

Total dividend= Stable Dividend+Special dividend

= R25 million+ R237.5 million

= R262.50 million

Total Dividend per share= Total dividend/Shares outstanding

= R262.50 million/250 million

= R1.05