Corporate Finance Essay
HSBC Holding plc (0005.HK)
HSBC Holding plc is one of the biggest providing various banking and financial product and services. It was found in 1865 and listed in Hong Kong in 1988.
1) Dividend payout
Year | DPS | DPS Growth | Actual paid DPS** | EPS | EPS Growth | Payout Ratio | 1997* | $0.277 | 25.91% | $0.277 | $0.69 | 13.11% | 40.14% | 1998* | $0.308 | 11.19% | $0.308 | $0.54 | -21.74% | 57.04% | 1999 | $0.340 | 10.39% | $0.340 | $0.65 | 20.37% | 52.31% | 2000 | $0.435 | 27.94% | $0.435 | $0.74 | 13.85% | 58.78% | 2001 | $0.480 | 10.34% | $0.480 | $0.54 | -27.03% | 88.89% | 2002 | $0.530 | 10.42% | $0.530 | $0.67 | 24.07% | 79.10% | 2003 …show more content…
2) Dividend policy:
The board stated that they would obtain a constant growth dividend amount to distribute the profit to the shareholders and target payout ratio would be in the range of 40% - 60%. However, in 2008 and 2009, they cut down the shareholder payouts substantially due to the financial crisis which resulted in huge earning decline and the regulatory uncertainty surrounding capital requirements.
The actual payout is consistent with such policy, as in majority of the years, the dividend payout ratio is within the range of 40%-60% with a growth of about 10%, even when the profits dropped in 2001 and 2012. In 2008 and 2009, HSBC cut down the dividend payout but once it adapted to the new situation, the dividend payout grew at around 10% again.
3) Factors associated with the company’s dividend payout over time: 1. Economic environment. As Hong Kong is the financial center, banks can gain benefits from this location and obtain good growth opportunity. However, unstable economic condition will result in volatile profit generated by the company and if the reduction of earnings is permanent, the dividend payout will be cut. 2. Regulatory requirement. Both Basel II and Basel III have requirement on capital of banks. As a result, HSBC cannot take the project with high risk as