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Dividend Policy of Logica and BP AMOCO

Essay 2003 9 Pages

Business economics - Investment and Finance

Excerpt

Initially some words about the companies this paper will analyse. BP p.l.c. is the holding company of one of the world largest petroleum and petrochemicals groups (BP p.l.c., 2003). Logica “provides an all-embracing portfolio of services from strategic consultancy and products to systems integration, solutions delivery and business process outsourcing” (Logica, 2002, front cover inside). It is important to state that Logica Plc and CMG Plc have merged to LogicaCMG on the 30th December 2002 (LogicaCMG, 2003).

i) Analyse the policy that each firm has regarding payment of dividends/retention of profits and discuss any trends or relationships that appear to exist between dividends and profits.

Figure 1: Earnings and dividends per Figure 2: Earnings and dividend growth share of BP rate of BP

illustration not visible in this excerpt

Figure 1 and figure 2 illustrate the earnings and dividends that BP has had in the years from 1997 until 2001. The earnings fluctuated greatly in these years and there were growth rates from - 44% (in 1998) to above 100% (in 2000). BP’s earnings have increased over the whole examined period. Most Significant were the changes from 1999 to 2000. In 2000 the earnings doubled and were twice as high as in 1999. During the next year the earnings decreased about 35%. BP paid stable dividends throughout these years in contrast to the volatile earnings, even in years when the company had negative earnings growth rates, as in 1998 and 2001. If the directors would have chosen to pay out a constant percentage of the earnings the dividend would be as volatile as the earnings. The dividends growth rate remained relatively constant compared to the earnings growth rate. This decreased from nearly 10% in 1998 to 1% in 1999 and then slowly increased to 7% in 2001. But during these years BP always had a positive dividends growth rate. When the earnings fell in 1998 and 2001 the directors increased the dividend by a higher percentage than the previous years. This may be interpreted as a positive signal to the market suggesting that the directors look

optimistic into the future. A Figure 3: Payout Ratio of BP

further point to look at is the payout ratio, which is illustrated in figure 3. The payout ratio fluctuates over the examined years. This is related to the chosen dividend policy to pay out a relative constant dividend independent of the earnings. But generally speaking it can be said that BP paid out more than 50% of their earnings.

illustration not visible in this excerpt

A considerable aspect is the payout ratio in 1998 with 117%. The earnings decreased about 43% but the dividend payment remained constant in comparison to the previous years. This was done to give a positive signal to the shareholders that the company will go on. A further distinctive feature is the low payout ratio in 2000. In this year the earnings doubled but the payout was half as much as in the last year. That can still be seen as being related to the chosen dividend policy to pay out a relative constant dividend each year.

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Details

Pages
9
Year
2003
ISBN (eBook)
9783638305532
File size
538 KB
Language
English
Catalog Number
v28898
Institution / College
University of Glamorgan
Grade
1,7
Tags
Dividend Policy Logica AMOCO

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Title: Dividend Policy of Logica and BP AMOCO