“Having a clear dividend growing theoretical account aiming two dividend additions per twelvemonth to 2013 of circa 10 % yearly capable to the TELUS Board’s appraisal and determination” ( Telus ) Telus’s current dividend policy is to go on with its advanced dividend growing program until at least the twelvemonth of 2013. The program is aimed to accomplish two dividend additions per twelvemonth with an one-year growing rate of 10 % . Of the two companies. Telus has a higher-than-industry dividend payout ratio. As compared to a industry degree of 46. 37 % . in 2011. the dividend payout ratio of Telus was 59 % . that is 13 % per centum higher than the industry degree of 46 % ( Reuters. 2012 ) . whereas. the payout ratio of Rogers in 2011 was 49 % . somewhat above the industry degree. In 2011. both companies used hard currency to pay dividend. anticipate for that Rogers besides use portion redemption to return portion of its net income to the stockholders. Both of the companies encourage dividend reinvestment and each lauched a dividend reinvestment program. Under this Plan. investors are allowed to bask the benefit to automatically get non-voting portions at market monetary value without securities firm committees or service charges.

Dividends Policy Factors

Tax: In Canada. dividend incomes are capable to a higher revenue enhancement than in the signifier of capital additions. For a house that has lower dividend payout ratio. it has excess hard currency to reinvest in more positive NPV undertaking. which increases the value of the house and the equity. This lead to higher capital additions that are otherwise nonexempt as a consequence of dividend payout. In this sense. Telus. as a higher dividend remunerator. may make a heavier revenue enhancement load to its stockholders than Rogers does. In add-on. due to the fact that Rogers besides applied portions buy back attack to administer net incomes to its stockholders. its stockholders can bask a lower revenue enhancement on capital additions. Flotation costs: since Rogers has a lower dividend payout ratio. its equity will growing faster by puting that excess money in new undertaking. In the long tally. to catch up with Rogers. Telus may hold to sell new portions through an investment banker. and the flotation cost as a consequence of a 2nd IPO can be really expense. Desire for current income: As compared to Rogers. Telus is more attractive to those who desire current income and are willing to pay premiums for those securities with a higher dividend payout ratio.

Even for those preferring capital additions. benefits from lower revenue enhancement can be offset by minutess. securities firm fees and clip consumed. Uncertainty Resolution: Because investors do non like uncertainness associated with forecasting future dividend. value companies that paying a higher dividends are sometimes more attractive than those with longer growing chances. In this instance. since telecommunication is a less volatile industry. with industry beta of 0. 57 ( Reuters. 2012 ) . investors can potentially bear more uncertainness. which give Telus flexibleness to take down its dividend payout ratio. Information and signalling: dividend policy conveys important information with regard of where the company is directed and how it is traveling to impute its hard currency. In contrary. Dividend cut is frequently a signal that the company is non making good financially.

In this instance. Telus’s 10 % dividend growing theoretical account is a positive signal. reflecting that the direction is confident with the company’s hereafter gaining chance. and is willing to portion the net incomes with its stockholders. However. such aggressive growing theoretical account is potentially hazardous as any cuts or skips can ensue in a powerful negative impact to the company’s stock monetary value. The clientele consequence: this refers to the consequence resulted from groups of investors attracted to different payouts. In this statement. which dividend policies are more favourable wholly depends on the market demand and supply. Since the telecommunication industry is reasonably mature and both Telus and Rogers have stable hard currency flow. stockholders are able to project a changeless or increase in their dividends over old ages. Therefore. it can be moderately assumed that patronage in telecommunication industry would include big proportion of investors that favours high payouts. This besides explains the mode that both of the company has maintained changeless growing dividend payouts.

Recommendation:

It is recommended that Telus should bit by bit slower its dividend growing rate to the company’s growing rate of 4. 37 % by the terminal of the 2013. As discussed above. Telus presently employed aggressive dividend growing policy that indicates 10 % dividend growing until 2013. The company has a mean dividend of 8. 8 % over the past five twelvemonth. and its dividend payout ratio and dividend output are both higher than its equal Rogers and above the industry degree. Harmonizing to the residuary dividend policy. the hard currency flow generated by the company should be foremost to fulfill necessary capital outgos and debt refund. and so the staying should be the sum that is paid to the stockholder. Sing that Telus’s concern scheme focuses on operational enlargement. changeless high dividend payouts may go forth the company with less flexibleness and impede the growing of the concern as the capital for reinvestment is leaked by presenting stockholders.

However. since dividend policy is contemplation of a company’s fiscal public presentation. instantly dividend cut proclamation is seemingly non a good pick as it may ensue in market overreaction in the portion monetary value. Therefore. Telus should be cautious in covering with the execution of the new dividend policy. It is recommended that Telus should foremost keep its dividend growing rate at 10 % by the terminal of 2013. which is consistent with its current direction determination. And so the dividend growing rate should be easy adjusted to the company’s growing rate of 4. 37 % over the clip skyline of five old ages.