CORPORATE FINANCE

Dividend Policy of Associated British Foods plc

Dividend Policy

Introduction

This paper focuses on Evaluation of Current Policy Dividend of Associated British Foods Plc and factors that influence dividend policy in this company. Furthermore, this paper would be concentrate on Management Analysis for evaluating the potential impacts on rise in the current dividend payout.

Discussion

Dividend policy of ABF

Without any doubt, Dividend policy is one of the most important polices in corporate financing. This has not been considered from the company point of view but also from shareholder perspective, consumers, worker and regulatory bodies and the government perspective, as well.

Dividend policy of Associated British Foods plc has been changed as their revenue for 2011 has increased due to increase in profitable investment in Primark by opening 233 store chains. This resulted in 15% increase in revenue, assisted by 2% rise in sales. Moreover, Associated British Foods plc in coming year expects a considerable growth adjusted operating profit and adjusted earnings per share.

Looking at the current highlight which clearly states that company has earned £329 million during early 2012 comparing to £319 million in 2011. This is due to the further expansion across the countries. Their overall sales increase to 11% in 2012, with net debt of £1.5 billion and subsequently £326 million of net capital investment. Looking at this company has increased their dividend with 8%; that is 8.5 Pence a share (Associated British Foods plc Annual Results 2011).

The company current dividend policy is based on the formation of the optimal dividend policy; which according to their management is the best strategy in order to increase the demand of the product and the market share as well. Associated British Foods plc has chosen this strategy due to the fac, that many investment opportunities governing growth is due to the investment decision. It also identified that the sources of financing by Associated British Foods plc in its investments, largely occupy by the money invested by the shareholders. Otherwise, they would have chosen its capital structure by considering a set of constraints, the cost of capital.

This funding decision will, therefore, determine the funding allocation between debt and equity. However, the distribution of equity financing and cash flow from capital increase is not defined. This falls under the role of dividend policy, the third component of financial decisions (Associated British Foods Plc Interim Results 2012).

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Looking at the above Dividend per Share and Earnings per Share Growth which are the bases for the deciding the dividend policy for a company it is clear that company has be performing well through four years. Moreover, they have been changing their policy according to their earnings which has been increasing due to their investment in other countries which now giving Associated British Foods plc a good return. Moreover, their cash flow was so much strong, that made the company eligible for organic growth and hence resulted in the strong progressive dividend policy. They have considered in buying back, 500 million shares with the aim ...