The main methods of dividend payments in world practice include:

• 1) constant percentage distribution of profits;
• 2) fixed dividend payments;
• 3) payments of the guaranteed minimum and extra dividends;
• 4) constant increase in the size of dividends;
• 5) payment of dividends on a residual basis;
• 6) payment of dividends in shares.

Let's take a closer look at each of the dividend payment methods.

1. The method of constant percentage distribution of profit (or a stable level of dividends) implies a stable percentage of net profit over a long period of time, directed to the payment of dividends on ordinary shares. At the same time, one of the main analytical indicators is the dividend yield ratio (Kdv), i.e. ratio of dividend per one ordinary share (Add share) to profit due per one ordinary share (Add share):

Kdv = Additional share / Additional share.

In accordance with this methodology, dividends on ordinary shares are not paid in cases where the company ended the current year with a loss or all profits received should be directed to holders of bonds and preferred shares.

In addition, the amount of dividends determined in this way may fluctuate significantly from year to year depending on the current year’s profit, which cannot but affect the market value of the shares.

2. The method of fixed dividend payments (or a stable amount of dividend payments) implies regular payment of dividends per share in a constant amount for a long time, regardless of changes in the market value of shares.

At high inflation rates, the amount of dividend payments is adjusted to the inflation index. If the company is developing successfully and the amount of annual profit exceeds the amount of funds required to pay dividends at a stable level, then the rate of fixed dividend payments per share can be increased.

The advantage of this technique is a sense of reliability, which creates a feeling of confidence among shareholders that the amount of current income will remain unchanged, regardless of various circumstances, and allows one to avoid fluctuations in the market value of shares on the stock market (which is typical, for example, of the first technique).

The disadvantage of this policy is the weak connection with the financial results of operations, therefore, during periods of unfavorable conditions and a decrease in the current year’s profit, the enterprise may not have enough of its own funds for investment, financial and even core activities. To avoid negative consequences, the fixed amount of dividends is set, as a rule, at a relatively low level in order to reduce the risk of a decrease in the financial stability of the enterprise due to insufficient growth of equity capital.

3. The method of payment of the guaranteed minimum and extra dividends provides for the regular payment of a fixed amount of dividends. In case of favorable market conditions and a large profit for the current year, extra dividends are paid to shareholders.

Thus, the current income of shareholders consists of dividends received annually, fixed at a minimum level, and extra-dividends periodically paid depending on the financial results of the reporting year.

The advantages of this method are the stably guaranteed payment of dividends in the minimum stipulated amount (similar to the fixed dividend payment method), a high connection with the financial results of the enterprise, which allows you to increase the size of dividends in favorable years without reducing investment activity.

In an unstable economic situation and significant fluctuations in the amount of profit received by the enterprise, this technique seems to be the most effective. Its main disadvantage is that with prolonged payment of minimum fixed dividends (without a premium in certain periods), the investment attractiveness of the company's shares decreases, and with regular payments of extra-dividends, their stimulating effect on shareholders decreases and the difference between this policy and the methodology of fixed dividend payments disappears .

4. The method of constantly increasing the size of dividends provides for a stable increase in the level of dividend payments per share. As a rule, the increase in the size of dividends is made in a fixed percentage to their level in the previous period.

The advantages of a policy of constantly increasing the size of dividends for shareholders are obvious; in addition, this ensures a high market value of the company's shares and their attractiveness in the eyes of investors with additional issues.

The disadvantages of the methodology are its inflexibility (since the size of dividend payments increases regularly, regardless of financial results, even during periods of lack of profit) and the constant increase in financial tension. A lag in the growth rate of profits from the growth rate of dividend payments means a reduction in the amount of reinvested profits, a curtailment of investment activities, and a decrease in the financial stability of the enterprise. An indispensable condition for the implementation of this technique in practice is rapid growth of profits compared to dividend payments.

5. The method of paying dividends on the residual principle provides for the payment of dividends last, after financing all effective investment projects. The dividend payment fund is formed after a sufficient amount of financial resources has been generated from the profits of the reporting year, ensuring the full implementation of the investment opportunities of the enterprise.

If the internal rate of return for proposed investment projects exceeds the weighted average cost of capital, then the profit is used to finance these projects, since they provide high rates of growth in the value of share capital.

The advantages of this technique are to ensure high rates of development of the enterprise, increase its market value, and maintain financial stability. This method of dividend payments is usually used during periods of increased investment activity at the initial stages of enterprise development.

The disadvantages of the technique are obvious:

*payment of dividends is not guaranteed or regular;

the amount of dividends is not fixed, it varies depending on the financial results of the past year and the volume of own resources allocated for investment purposes;

Dividends are paid if the company has profits that are not used for capital investments.

The market value of shares of enterprises that pay dividends on a residual basis is usually low.

6. The method of paying dividends with shares provides for the issuance of an additional block of shares to shareholders instead of cash.

The amount of such dividends is equal to the amount of the reduction in funds capitalized in the authorized capital and reserves. This approach, under certain conditions, can satisfy shareholders, since the securities they receive as dividend payments can be sold on the stock market. By law, the sale of shares is regarded as a sale of capital and is subject to taxation at the capital income tax rate.

Payment of dividends in shares can be carried out either with unchanged amounts of the authorized capital and balance sheet currency, i.e. simple redistribution of sources of own funds, or with a simultaneous increase in the authorized capital and balance sheet currency.

In the first case, the increase in the liability of the authorized capital is carried out by reducing the share premium and retained earnings of previous years. If the number of shares outstanding increases, but the total amount of sources of funds (balance sheet currency) does not change, then the value of assets per share decreases.

In the second option (the issue of ordinary shares with a simultaneous increase in the authorized capital), the additional issue of shares does not lead to a reduction in the value of assets per share and, as a rule, does not lead to a decrease in the market value of the shares.

When using this technique, the dynamics of the market price of securities is the least predictable. The small amount of dividends paid in this way usually does not affect the market price of the shares. If the dividends are significant, then the market price of shares after the additional issue may fall significantly.

Often, enterprises are forced to resort to this method of dividend payments, for example, in the event of an unstable financial situation and the absence of highly liquid assets for settlements with shareholders, or when it is necessary to reinvest the profits of the reporting year into a highly effective project.

In accordance with Russian legislation, a joint stock company has the right to pay dividends in shares only if this is provided for by its charter.

In general, all considered dividend payment methods can be grouped into three main approaches to the formation of dividend policy: conservative, moderate (compromise) and aggressive.

The conservative type corresponds to the methods of paying dividends on the residual principle and fixed dividend payments.

The moderate (compromise) type corresponds to the method of paying a guaranteed minimum and extra dividends.

The aggressive type corresponds to the methods of constant percentage distribution of profits and constant increase in the size of dividends.

The implementation of a dividend payment policy through the payment of dividends in shares is determined by so many factors that it cannot be unambiguously attributed to any of these types.

The method of paying dividends on the residual principle provides for payment of dividends last, after financing all effective investment projects. The dividend payment fund is formed after a sufficient amount of financial resources has been generated from the profits of the reporting year, ensuring the full implementation of the investment opportunities of the enterprise. If the internal rate of return for proposed investment projects exceeds the weighted average cost of capital, then the profit is used to finance these projects, since they provide high rates of growth in the value of share capital.

The advantages of this technique are to ensure high rates of development of the enterprise, increase its market value, and maintain financial stability. This method of dividend payments is usually used during periods of increased investment activity at the initial stages of enterprise development. The disadvantages of the methodology are obvious: payment of dividends is not guaranteed or regular; the amount of dividends is not fixed, it varies depending on the financial results of the past year and the volume of own resources allocated for investment purposes; Dividends are paid if the company has profits that are not used for capital investments. The market value of shares of enterprises that pay dividends on a residual basis is usually low.

Methodology of fixed dividend payments(or a stable amount of dividend payments) implies regular payment of dividends per share in a constant amount over a long period of time, regardless of changes in the market value of the shares. At high inflation rates, the amount of dividend payments is adjusted to the inflation index. If the company is developing successfully and the amount of annual profit exceeds the amount of funds required to pay dividends at a stable level, then the rate of fixed dividend payments per share can be increased. When conducting a dividend policy using this methodology, enterprises also use the dividend yield indicator, which serves as a guideline in determining the size of a fixed dividend for the future.

The advantage of this technique is a sense of reliability, which creates a feeling of confidence among shareholders that the amount of current income will remain unchanged, regardless of various circumstances, and allows one to avoid fluctuations in the market value of shares on the stock market (which is typical, for example, of the first technique). The disadvantage of this policy is the weak connection with the financial results of operations, therefore, during periods of unfavorable conditions and a decrease in the current year’s profit, the enterprise may not have enough of its own funds for investment, financial and even core activities. To avoid negative consequences, the fixed amount of dividends is set, as a rule, at a relatively low level in order to reduce the risk of a decrease in the financial stability of the enterprise due to insufficient growth of equity capital.

The method of paying the guaranteed minimum and extra dividends provides regular payment of a fixed amount of dividends. In case of favorable market conditions and a large profit for the current year, extra dividends are paid to shareholders. Thus, the current income of shareholders consists of dividends received annually, fixed at a minimum level, and extra-dividends periodically paid depending on the financial results of the reporting year.

The advantages of this method are the stably guaranteed payment of dividends in the minimum stipulated amount (similar to the fixed dividend payment method), a high connection with the financial results of the enterprise, which allows you to increase the size of dividends in favorable years without reducing investment activity. In an unstable economic situation and significant fluctuations in the amount of profit received by the enterprise, this technique seems to be the most effective. Its main disadvantage is that with prolonged payment of minimum fixed dividends (without a premium in certain periods), the investment attractiveness of the company's shares decreases, and with regular payments of extra-dividends, their stimulating effect on shareholders decreases and the difference between this policy and the methodology of fixed dividend payments disappears .

Method of constant percentage distribution of profits(or a stable level of dividends) implies a stable percentage of net profit over a long period of time, directed to the payment of dividends on ordinary shares. At the same time, one of the main analytical indicators is the dividend yield ratio (Kdv), i.e. ratio of dividend per ordinary share to profit attributable to one ordinary share:

Kdv= Add.acc. :Sub.acc.

where Dobb.akts is the dividend per ordinary share; Pob.akts - profit due per one ordinary share.

This type of dividend policy assumes a stable dividend yield per ordinary share over a long period of time. It should be noted that the profit due on an ordinary share is determined after the payment of income to bondholders and dividends on preferred shares (the profitability of these securities is agreed upon in advance, regardless of the amount of profit, and is not subject to adjustment). At the same time, the main disadvantage of this policy is the instability of the size of dividend payments per share, determined by the instability of the amount of generated profit. This instability causes sharp changes in the market value of shares in certain periods, which prevents the maximization of the market value of the enterprise in the process of implementing such a policy (it “signals” a high level of risk in the economic activity of this enterprise). Even with a high level of dividend payments, such a policy usually does not attract risk-averse investors (shareholders). Only mature companies with stable profits can afford to implement this type of dividend policy; if profit fluctuates significantly, this policy generates a high threat of bankruptcy. The dynamics of the dividend size depending on the type of dividend policy can be seen in Figure 1.

The method of constantly increasing the size of dividends involves stable increase in the level of dividend payments per share. As a rule, the increase in the size of dividends is made in a fixed percentage to their level in the previous period. The advantages of a policy of constantly increasing the size of dividends for shareholders are obvious; in addition, this ensures a high market value of the company's shares and their attractiveness in the eyes of investors with additional issues.

Rice. 1.

The disadvantages of the methodology are its inflexibility (since the size of dividend payments increases regularly, regardless of financial results, even during periods of lack of profit) and the constant increase in financial tension. A lag in the growth rate of profits from the growth rate of dividend payments means a reduction in the amount of reinvested profits, a curtailment of investment activities, and a decrease in the financial stability of the enterprise. An indispensable condition for the implementation of this technique in practice is rapid growth of profits compared to dividend payments.

An important stage in the formation of dividend policy is the choice of forms of dividend payment. The main of these forms are:

• 1. Payment of dividends in cash (checks). This is the simplest and most common form of dividend payments.
• 2. Payment of dividends in shares of a new issue. This form provides for the provision of newly issued shares to shareholders in the amount of dividend payments. It is of interest to shareholders whose mentality is focused on capital growth in the coming period. Shareholders who prefer current income can sell additional shares in the market for this purpose.
• 3. Payment of dividends using repurchased old outstanding shares of the company. It is considered as one of the forms of dividend reinvestment, according to which the company buys part of the freely traded shares on the stock market using the amount of the dividend fund. This allows you to automatically increase the profit per remaining share and increase the dividend payout ratio in the upcoming period. This form of use of dividends requires the consent of shareholders.
• 4. Payment of dividends by barter, i.e. finished products of the joint-stock company, its property. This form of payment is rarely encountered in practice when a company issues dividends in goods.

As is known, net profit is distributed among dividend payments on preferred shares and profits available to holders of ordinary shares . The latter, in turn, is distributed by decision of the meeting of shareholders to dividend payments on ordinary shares and retained earnings .

Method of constant percentage distribution of profits. One of the main analytical indicators characterizing the dividend policy is the “dividend yield” ratio, which is the ratio of dividends on ordinary shares to the profit available to owners of ordinary shares (per share). The dividend policy of constant percentage distribution of profit assumes the unchanged value of the dividend payout ratio, in other words, the company focuses on a certain target value.

In this case, if a commercial organization ended the year with a loss, the dividend may not be paid at all. A distinctive feature of this approach is the likely significant variation in dividends on ordinary shares, which, as noted above, can and, as a rule, leads to undesirable fluctuations in the market price of shares. Namely, a decrease in the dividend paid causes the stock price to fall. Although this dividend policy is used by some firms, most theorists and practitioners in the field of financial management do not recommend its use.

Methodology of fixed dividend payments. This policy provides for the regular payment of dividends per share in a constant amount over a long period of time, regardless of changes in the market value of the shares. If the company is developing successfully and earnings per share have consistently exceeded a certain level for a number of years, the dividend may be increased. That is, there is a certain lag between these two indicators. When determining the size of a fixed dividend for a certain future, companies often use acceptable values ​​of the “dividend yield” indicator as a guideline. This technique allows, to a certain extent, to neutralize the influence of the psychological factor and avoid fluctuations in stock prices, which are characteristic of the method of constant percentage distribution of profits.

Method of paying the guaranteed minimum and extra dividends. This method is a development of the previous one. The company pays regular fixed dividends, but periodically, in case of successful activities, extra dividends are paid to shareholders. The term “extra” means a bonus added to regular dividends and of a one-time nature, i.e. there is no promise of receiving it next year. Moreover, it is also recommended to use the psychological impact of the bonus here - it should not be paid too often, since in this case it becomes expected, and the method of paying extra dividends itself becomes useless.

Method of paying dividends on a residual basis. The essence of this method, which is quite common in the West, is that dividends should be paid last after all the justified investment needs of the company have been satisfied. From here the sequence of actions is visible: a) an optimal capital investment budget is drawn up; b) the optimal structure of funding sources is determined, within which the amount of equity capital required for budget execution is determined; c) dividends are paid only if there is profit left unclaimed to finance investments.

Method of paying dividends with shares. With this form of payment, shareholders receive an additional block of shares instead of money. The reasons for its use may vary. For example, a company has cash flow problems and its financial position is not very stable. In order to somehow avoid shareholder dissatisfaction, the company's directorate may propose paying dividends in additional shares.

The second option is also possible: the financial position of the company is stable, moreover, it is developing at a rapid pace, so it needs funds for development, which come to it in the form of retained earnings. Finally, reasons such as the desire to change the structure of sources of funds, the desire to provide successfully working top management personnel with shares in order to “tie” them to the company and thereby stimulate their even more active work, etc. are also possible.

Residual dividend approach assumes that the amount of dividends paid to the company's shareholders is determined based on the amount of capital remaining after all capital expenditures have been made. The company's cash flow is primarily used to meet its own needs for development and stable existence, and part of what remains is paid in the form of dividends. This strategy is also called conservative dividend and is most often used by young companies that need significant financial injections to gain a foothold in the industry. There is no universal formula for calculating the residual dividend - each company determines individually what percentage of the residual capital is appropriate to spend on dividends.

Advantages and disadvantages of the approach

The key advantage of such a policy is the ability to ensure reliable functioning of the business. This is why investors, as a rule, do not oppose the residual dividend approach - they understand that demanding high payments can push the company to bankruptcy, which means they will lose significantly more (a block of shares). A company using this approach also remains in the black - it increases its credit rating, as a result of which it should not have problems with financing in the future.

Another advantage for the company is the ability to minimize accounts payable. Since all capital expenditures are financed by cash flow, there is no need to borrow from the bank at interest. Depending on the strength of cash flow, you can not only offset expenses and pay dividends, but also set aside part of the funds for future projects.

The method for calculating the residual dividend also depends on what share structure the company chooses at the time of issue. The fact is that the calculation methods are different for preferred and ordinary shares. This is the disadvantage of the approach - a situation may arise when only the owners of preferred securities receive dividends.

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Basic methods of dividend payments

Depending on the chosen dividend policy, the company independently selects and implements a specific dividend payment method.

The following methods are used in world practice:

· constant percentage distribution of profits;

· constant growth of dividend payments;

· payment of the guaranteed minimum and extra dividends;

· payment of dividends on a residual basis;

· payment of fixed dividends.

Type of dividend policy	Name of dividend payment method	Contents of the methodology
Aggressive policy	Method of constant percentage distribution of profits	Dividend output = const
Methodology for constant growth of dividend payments	Increase in dividend per 1 share at the planned level of the dividend yield indicator
Moderate politics	Method of payment of the guaranteed minimum and extra-dividends	Dividend per share = const, premium to regular dividends
Conservative politics	Residual dividend method	Dividend payments in year t = Net profit - Retained earnings required to finance investment programs
Methodology of fixed dividend payments	Dividend per 1 share = const

· The method of constant percentage distribution of profits is based on maintaining the constant value of the dividend yield indicator. Fluctuations in dividends over the years in absolute terms depend on the amount of profit (Fig. 9.6).

This technique assumes a stable percentage of net profit over a long period of time, directed towards the payment of dividends on ordinary shares.

The dividend yield ratio is determined by the formula:

,

Where To Far East- dividend yield ratio;

D OA- dividend per one ordinary share;

P OA- profit per ordinary share.

It should be noted that the amount of profit due on an ordinary share is determined after the payment of interest on bonds and dividends on preferred shares, since the profitability of these securities is agreed upon in advance and is not subject to adjustment.

Payment of dividends on common shares may be reduced or not made at all if the company's profits fall sharply or the current year ends with a loss.

The use of this technique does not contribute to an increase in the market price of the stock, since fluctuations in the amount of dividends received are possible. However, it is convenient for stable operating industries whose earnings per ordinary share (EPS) fluctuate slightly.

· The method of constant growth of dividend payments provides for stable growth of dividends per share (DPS). As a rule, the company sets a fixed percentage of the increase in dividends to their level in the previous year. The advantages of this method are obvious to shareholders. This ensures a high market value of the shares and creates a positive image among potential investors.

The use of this technique leads to a smoother dynamics of dividends per share, since dividends react to profit growth with a certain time lag. If at the stage of economic growth there is a predominant increase in net profit relative to the amount of dividend per share, then a decrease in business activity negatively affects this ratio (Fig. 9.7).

In Fig. 9.7 shows that when the rate of profit growth slows down, the company may experience financial tension, and financial stability indicators will deteriorate.

Example 9.3

Over the past six years, the dynamics of net profit available to owners of ordinary shares of Vympel OJSC was characterized by the following data:

o 1st year - 800 thousand rubles;

o 2nd year - 700 thousand rubles;

o 3rd year - 900 thousand rubles;

o 4th year - 1000 thousand rubles;

o 5th year - 950 thousand. rub.;

o 6th year - 600 thousand rubles.

Number of ordinary shares in circulation - 1000 pcs. The dividend amount for the first year was 200 rubles. per share. All these years, Vympel OJSC has pursued a policy of constantly increasing dividends by 25% annually. In the long-term internal forecast, the maximum acceptable value of the dividend yield indicator was set at 50%. Let's calculate the main indicators characterizing the dividend policy of Vympel OJSC (Table 1).

Table 1

Dividend yield calculation (DPR)

Years	Net profit, thousand rubles.	Number of shares, pcs.	Earnings per 1 share (EPS), rub.	Dividend per 1 share (DPS), rub.	Dividend growth, %	Dividend yield (DPR), %
					-
				312,5
				390,6
					-37

Analysis of the results shows that during the first four years, the volume of profit received allowed the dividend to be increased by 25% annually. Decrease in profit in 2006 to 950 thousand rubles. and in 2007 up to 600 thousand rubles. did not allow for a 25% dividend increase per ordinary share. In this case, the dividend per ordinary share in 2006 would be 390.6 · 1.25 = 488.25 rubles, which exceeds the maximum acceptable level of dividend yield, which according to the example condition is 50% by 1.4% (488. 25 / 950 = 51.4%). In 2007, the dividend per ordinary share, given its growth by 25%, would have been 593.75 rubles. (475 · 1.25), which also exceeds the maximum specified growth level by 48.9%. Therefore, the payment of dividends per ordinary share was limited to 300 rubles.

· The methodology for paying the guaranteed minimum and extra dividends is based on the following principles:

o constant, regular payments of fixed amounts of dividends per share;

o during periods of the most successful work - payment in addition to fixed dividends of an emergency extradividend (Fig. 9.8).

An extra dividend is a premium accrued on top of regular dividend payments and is not related to changes in the established rate.

Payment of extradividends is one-time in nature. The role of extradividends is to maintain a stable market value of shares. The payment of extradividends carries positive information about the activities and prospects for the development of the company.

This method is considered the most balanced, since it ensures the stability of dividend payments, and during periods of economic growth allows them to increase their value, thereby encouraging shareholders. The use of this technique helps smooth out fluctuations in the stock price.

· The priority of the residual dividend method is to take into account the organization’s investment opportunities, capital structure, availability and price of attracted capital. This model is the basis for determining the target value of the dividend yield ratio in the long term. Dividends are paid after financing effective investment projects. If the rate of return on investment projects exceeds the weighted average cost of capital, then the profit is used to finance these projects. The use of this technique ensures high rates of economic growth of the organization and increases its market value.

As a rule, this technique is used during periods of increased investment activity, at the initial stages of the organization’s life cycle.

The disadvantages of the residual dividend method include:

o wide unfixed range of dividend payments;

o irregular payment of dividends due to the fact that it is carried out only if there is profit left after financing the investment;

o low market price of shares.

· The fixed dividend payment method provides for the regularity of dividend payments per ordinary share over a long period of time, regardless of the dynamics of the stock price (Fig. 9.9).

The advantages of the fixed dividend method are:

o smoothing out fluctuations in the stock price;

o stable quotation of shares on the stock market;

o high liquidity of shares;

o receipt of regular current income by shareholders.

The disadvantages of the technique include:

o weak connection with the financial performance of the organization;

o the likelihood of a significant deterioration in the organization’s liquidity in the event of a sharp decrease in profit.

This technique is used, as a rule, by organizations with a low level of risk, counting on investment investments from various financial institutions.