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IME Journal
pISSN:0974-0716
eISSN:2582-1245

Editor-in-Chief:  Prof. Dr. A.K. Sharma
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IME Journal
Year : 2020, Volume & Issue : IME Journal 14(1), JAN-JUN 2020
Page No. : 59-67, Article Type : Original Aticle
Article DOI : 10.5958/2582-1245.2020.00009.3 (Received on 13.02.2020 Accepted on 30.05.2020)

Do Higher Dividend Payouts Signifies Higher Operating Profits and How Does It Impact MPS of the Firm: An Intriguing study of Microsoft Corporation

Shubham Jain*, Vandana Rastogi**
Author’s Affiliation : *Assistant Professor, Department of Commerce, IME Group of Colleges, Sahibabad, Ghaziabad, Uttar Pradesh 201005, India E-mail: shubhamcv36@gmail.com **Assistant Professor, Department of Commerce, IME Group of Colleges, Sahibabad, Ghaziabad, Uttar Pradesh 201005, India E-mail: vandana.rustagi@gmail.com

Corresponding Author : Shubham Jain, Assistant Professor, Department of Commerce, IME Group of Colleges, Sahibabad, Ghaziabad, Uttar Pradesh 201005, India,
E-Mail:-shubhamcv36@gmail.com


Abstract

The term dividend refers to distribution of profits among the shareholders or the owners of the organization. The dividend decision is included among the three basic decisions which a financial manager has to critically analyze and asses. After satisfying all the external obligations of the firm (i.e. to the creditors, lenders, Govt. etc), earnings remained can be distributed as dividends or can be retained for growth prospects in future. The expected level of cash dividend, from the perspective of equity shareholders is the key variable using which stakeholders / investors can ascertain the Valuation of Entity. Hence, the dividend decision is of utmost importance.  So, the first question arises, whether the firm should pay dividend? If the firm chooses to pay dividend, then, the next question arises: “how much should be the dividend payout ratio (D/P Ratio)?” keeping in mind the shareholder’s expectations, previous year dividends (if any), current market trends, investment & growth prospects and so on. If dividend is paid by the firm, then the cash flow position would be affected but at the same time, it generates goodwill for the investors, who as a result are encouraged to provide additional funds for the future growth of the organization. Given the firm’s investment and financing decisions, how market share price is manipulated by the firm’s dividend policies? Does higher dividend payout decrease, increase or not affect at all the share price of the firm. So, over the years this decision has been a debating issue for the management and is stated as a dividend puzzle. In our research paper, we have focused our aim to observe the impact of all the above factors concerning dividend decisions on the market price or share price (i.e. MPS) and profitability of the firm (i.e. EPS). The analysis is done using some well known models: - “WALTER’S MODEL, GORDON’S MODEL & MODIGLIANI-MILLER APPROACH”. To give this study a more practical approach, we have taken the case study of “MICROSOFT COMPANY”. We have gone through the dividend policies of the firm in the past & recent years and its impact on the Valuation of Entity.

Keywords

Dividends, Shareholders, Dividend Policies, EPS, MPS, Value of Firm
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