Dividend Policy

By Thomas Chua

This is a policy that the management of a company established to provide shareholders an expectation on the company’s dividend payout. One thing you have to understand is that dividend policies are not legally binding document. This means that company could still choose not to follow through.

Nevertheless, I still think that it is a good practice for listed companies in Malaysia to establish one. This is because it provides some level of transparency and confidence to shareholders especially minority investors like you and me.

If a company fails to meet its dividend policy set, the management definitely will have to provide some explanations. This then allow us to verify whether the management’s explanation is reasonable or not by doing some fact finding.

For example, you could look into the company’s income statement and assess its performance if the reason for not meeting the dividend policy is due to poor financials. This way, you know whether the management is candid about the explanation given.

KSL Holdings Berhad (“KSL”) is a property development and investment company listed on the Main Market of Bursa Malaysia. During the year 2015, the company has put in place a dividend policy where the management states their intention to declare a minimum dividend payout of 40% based on its annual net profit from operations.

However, this was announced during the period when Malaysia’s housing market just started to suffer a downturn due to the changing market trends where the demand is towards the “affordable” segment (eg price of RM300,000 and below per unit®, and below per unit). This has led to an oversupply in the mid to high-end residential property segment.

KSL’s financial performance was badly affected as its residential property development projects focused on mid to high-end segment (e.g. price of RM500,000 and above) within the Johor region. To make matters worse, Johor had the largest share of unsold units (approximately 27% of total unsold properties in Malaysia as at 1Q 2017).

As a result, KSL had a staggering unsold unit valuing at RM478.7 million as of 31 December 2019 and it has been increasing consistently since the start of the property downturn.

Get the complete story here! Dividend Growth Investing by Thomas Chua https://kanyinbooks.com/collections/english-book/products/dividend-growth-investing-malaysia-thomaschua

About Thomas Chua: A member of the Association of Chartered Certified Accountants (ACCA). He spent the last 7 years working as a financial auditor and risk consultant from 2013 to 2020. During these periods, he was involved in various consultancy engagements such as pre-IPO Internal Control Framework Review and Enterprise Risk Management for entities undergoing listing exercise on Bursa Malaysia, SGX and HKEx. He runs an investment blog – stockinsights.com – with a mission to educate people about stock investing.

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