Dividend policy

4.Payment date

Last is the payment date, the date on which the actual dividend is paid out to the stockholders of record.

Like cash dividends, stock dividends and stock splits also have effects on a company's stock price. Stock splits occur when a company perceives that its stock price may be too high. Companies tend to want to keep their stock price within an optimal trading range. While stock prices will most likely rise after a split or dividend (remember price increases are caused by positive signals a company generates with respect to future earnings), if positive news does not follow, the company's stock price will generally fall back to its original level. There is an argument that stock splits and stock dividends are unnecessary and do little more than create more stocks. Stock Dividends

Stock dividends are similar to cash dividends; however, instead of cash, a company pays out stock. As a result, a company's shares outstanding will increase, and the company's stock price will decrease. For example, suppose Newco decides to issue a 10% stock dividend. Each current stockholder will thus have 10% more shares after the dividend is issued.

Stock Repurchase. A stock repurchase occurs when a company asks stockholders to tender their shares for repurchase by the company. This is an alternate way for a company to increase value for stockholders. First, a repurchase can be used to restructure the company's capital structure without increasing the company's debt load. Additionally, rather than a company changing its dividend policy, it can offer value to its stockholders through stock repurchases, keeping in mind that capital gains taxes are lower than taxes on dividends. Advantages of a Stock Repurchase:

-Many companies initiate a share repurchase at a price level that management deems a good entry point. This point tends to be when the stock is estimated to be undervalued. If a company knows its business and relative stock price well, would it purchase its stock price at a high level? The answer is no, leading investors to believe the management perceives its stock price to be at a low level.

-Unlike a cash dividend, a stock repurchase gives the decision to the investor. A stockholder can choose to tender his shares for repurchase, accept the payment and pay the taxes. With a cash dividend, a stockholder has no choice but to accept the dividend and pay the taxes.

-At times, there may be a block of shares from one or more large shareholders that could come into the market, but the timing may be unknown. This problem may actually keep potential stockholders away since they may be worried about a flood of shares coming onto the market and lessening the stock's value. A stock repurchase can be quite useful in this situation.

Disadvantage of a Stock Repurchase:

-From the perspective of an investor, a cash dividend is dependable, usually quarterly. A stock repurchase, however, is not. For some investors, the dependability of the dividend may be more important. As such, investors may invest more heavily in a stock with a dependable dividend than in a stock with less dependable repurchases.

-A company may be in a position where it ends up paying too much for the stock it repurchases. For example, say a company repurchases its shares for $30 per share on June 1. On June 10, a major hurricane damages the company's primary operations. The company's stock therefore drops down to $20. Thus, the $10-per-share difference is a lost opportunity to the company.

-Overall, stockholders who offer their shares for repurchase may be at a disadvantage if they are not fully aware of all the details. As such, an investor may file a lawsuit with the company, which is seen as a risk.

According to the Kazakhstan law, the sources of dividends may be: net profit for the period, retained earnings from previous periods and special funds established for this purpose (The last are used for the payment of dividends on preference shares in the case of insufficiency of profit or loss of the company). So in theory company can pay the total amount of the current dividend in the amount exceeding profit for the period. However, the basic option is the distribution of the net profit of the current period.

The net profit of any company is a subject to fluctuations, also it is not excluded a situation where the company is performing with a loss. The decision on the amount of dividends in any case is not an easy task. Firstly, in conditions of the market, there are always opportunities to expand production capacity or participation in new investment projects. Secondary, the instability of the payment of dividends or a sharp change in their values are fraught with reduced market value of the shares. That is why in the world have developed different versions of dividend payments. Let's summarize them.

Method of distribution of profit from constant percentage of net income. As is known, the net income is allocated to the payment of dividends on preferred shares (DPS) and the profits available to common shareholders (DCS). The latter, in turn, distributed decision of the shareholders on dividends to the ordinary shares (DCS) and retained earnings (RE).

One of the main analytical indicators of the dividend policy is a factor of "dividend yield", which is the ratio of the dividend on ordinary shares to the earnings available to holders of common shares (per share). The dividend policy of constant percentage of profit distribution suggests invariability values of the coefficient "dividend yield”.

In this case, if the company ended the year with a loss, the dividend may not be paid. This technique, furthermore, accompanied by a significant variation of ordinary dividend, which, as noted above, may lead to undesirable fluctuations of the market price of the shares. Dividend  reduction causes a drop in the share price. This dividend policy is used by some companies, but most theorists and practitioners in the field of financial management do not recommend to use it.

 

Chapter  2

Dividend Policy in Kazakhstani companies

"People's IPO will provide hundreds of thousands of ordinary Kazakhs the chance to own shares of the largest companies as well as a new tool of investment and increase their savings, and wealth. " 

 Nursultan Nazarbayev, XIII Congress of "Nur Otan"

Traditionally, an IPO (Initial Public Offering) is the first public sale of shares of a joint-stock company amongst an unlimited circle of persons. Shares can be sold for the first time (strictly speaking, an IPO) or they can be offered to existing shareholders (SPO). In both cases the abbreviation IPO is usually used.  As a rule, IPOs are an instrument of raising money. Less frequently the IPO mechanism (to be more precise, SPO) is a way for a major shareholder to quit the company. If we talk about a "People’s IPO", objectives are more global. In particular, the government program of "People’s IPO" in Kazakhstan adopted in autumn 2011 is aimed at:

• providing citizens with chances of buying shares of the country’s major enterprises,
• creating a new tool for investing and augmenting personal savings, further developing of the stock market,
• raising by businesses of additional funding in their pursuit of successful investment plans.

First on the program, which would allow citizens to become co-owners of the nation's largest companies, said President Nursultan Nazarbayev said in February 2011 at the XIII Congress of the Party "Nur Otan". In July 2011, the Board of Directors of JSC "National Welfare Fund" Samruk-Kazyna "approved program placement of shares in subsidiaries and affiliated companies in the stock market. In September of the same year program was approved by the Government of the Republic of Kazakhstanю A list of joint stock companies whose shares will be offered for sale in stages - until 2015. Company Parties "People's IPO» are at JSC "National Welfare Fund" Samruk-Kazyna ". It's a quarter of the country's economy, the strategic assets in Kazakhstan. This infrastructure: oil and gas pipelines, power grids, railways, power plants, aircraft, navy. It helps to build new factories, open production. The state will retain control of the base enterprises - for sale exhibited small stakes. To participate in the Program selected companies that have no significant dependence on the world prices for raw materials.

The first company that issued shares under the People’s IPO program was JSC KazTransOil.  KazTransOil is a largest oil pipeline company of the Republic of Kazakhstan, which provides services on oil transportation on the domestic market and for export. “KazTransOil” JSC was included in the Republican section of State register of subjects of natural monopolies. “KazTransOil” JSC is an owner of the largest network of main oil pipelines and waterlines in the Republic of Kazakhstan, total length of which amounts to 5 495,23 km of oil pipelines (with account of 71,7 km of “Kenkiyak - Orsk” oil pipeline, which passes through the territory of the Russian Federation and which is on the balance sheet of Representation of KazTransOil in Samara) and 2 148 km of water pipeline.Oil transportation via the main oil pipelines is ensured by 29 oil pumping stations, 64 oil preheaters, tank farm for oil storage of oil with overall volume 1 259 000 cub. m. Oil transshipment is performed by 4 loading-unloading railroad racks and oil loading facilities installed on 5 piers of oil loading terminal of Aktau Sea port. Water supply is provided by 3 water pump stations, 2 water treatment plants, tanks for water storage with overall capacity 156 300 cub. m. In accordance with the Government of the Republic of Kazakhstan Decree #1273 dated October 8, 2012, "KazTransOil" JSC is appointed as the National Operator for Oil Pipelines. The activities of the National Operator are aimed at the development of oil pipeline system in Kazakhstan and provision of their effective, reliable and safe operation. The main objectives of the National Operator are: protecting the interests of the Republic of Kazakhstan and other parties concerned in transportation of products via oil pipelines to the domestic and foreign markets; providing innovative development of oil pipelines and their integration with the global energy system; participating in the development and implementation of the National Oil and Gas Industry development programs in regards to oil transportation via pipelines; initiating the consideration by the Authorized body of the regulation amendments providing further improvement of the National legislation on the main oil pipeline; drafting of and obtaining approvals for regulatory documents and technical standards for main oil pipelines; participating in the development and implementation of international agreements in the field of oil transportation via oil pipelines; participating in international pipeline projects aimed at strengthening energy security and the diversification of oil transportation routes. The National Operator: has the right to provide on the territory of the Republic of Kazakhstan the operator services for oil pipelines in which fifty percent or more of the voting shares (participation) are owned directly or indirectly by the state, the national managing holding company or the national company; has the right to provide services for organization of oil transportation from the Republic of Kazakhstan via transit countries' pipeline systems that are connected to oil pipelines owned by National Operator by the right of ownership or other legal basis (operator’s activity on unified routing). On December 25, 2012 the ceremony of official opening of the auction by the common shares of JSC KazTransOil in the secondary market took place in a trading floor of the Kazakhstan stock exchange. During a subscription 10 accumulative pension funds and 33 989 citizens of the Republic of Kazakhstan bought the common shares of JSC “KazTransOil”. The volume of demands exceeded placement volume for 2.1 times. From February 1, 2013 the common shares Of “KazTransOil” JSC will be included into the KASE Index representative list. As of today “KazTransOil” JSC is a participant and shareholder of 2 legal entities with foreign participation: “Kazakhstan-China Pipeline” LLP (KCP), where KazTransOil and CNODC participate on parity basis. KCP owns "Atasu - Alashankou" and "Kenkiyak - Kumkol" oil pipelines with 1 759 km total length and throughput capacity 12 MMT/y. “MunaiTas” NWPC JSC (MunaiTas), shareholders of which are KazTransOil (51% of shares) and CNPC Exploration and Development Company Ltd. (49% of shares). MunaiTas owns "Kenkiyak - Atyrau" oil pipeline with 448,8 km total length and throughput capacity 6 MMT/y. “KazTransOil” JSC owns “Batumi Oil Terminal” LLC (Georgia) through «Batumi Industrial Holdings Limited» and «Batumi Capital Partners Limited», which operates oil terminal in Batumi Sea port in Georgia and has the exceptional management rights on 100% of shares of “Batumi Sea Port” LLC (Georgia). “KazTransOil” JSC performs services on operation and technical maintenance of main oil pipelines, owned by other legal entities: "Kenkiyak - Kumkol" and "Atasu - Alashankou" (“Kazakhstan-China Pipeline” LLP), "Kenkiyak - Atyrau" (MunaiTas” NWPC JSC), "Aksai - Bolshoi Chagan - Atyrau" (Karachaganak Petroleum Operating B.V.), COAS Turgai-Petroleum - HOPS “Kumkol” (“Turgai-Petroleum” JSC).

"Dividend Policy" KazTransOil "approved by the decision of the Sole Shareholder of July 3, 2012 (Minutes of the Board of JSC NC" KazMunaiGas »№ 75). The Company's dividend policy is based on a balance of the interests of the Company and its shareholders as well as the need to increase the capitalization and investment attractiveness. Dividend policy establishes the amount of the payment of dividends at least 40% of the net income of the Company. The actual dividend may reach or exceed 100% of the net income of the Company, if it is not contrary to the obligations of the Company. The Board reserves the right to offer the level of dividend payments lower than the standard 40%, based on the actual results of the Company for the financial year, and the dynamics of an industry-wide program of capital (investment) costs of the Company. The Board of Directors of the Company in the preparation of proposals on the distribution of the net profit for the quarter or half-year, based on the fact that the amount available for dividends is not less than 10% of the Company's net income for the relevant financial period. In the case of payment of dividend for the quarter or half-year, the amount of actual progress payments are taken into account in the payment of dividends for the financial period. Dividends paid by the Company in cash. The dividend payment is established by the General Meeting of shareholders in the decision on the payment of dividends. Analyzing the dividend policy of the JSC KazTransOil I mentioned that it have floating dividend yield.

Dividend payments for previous years:

	2009	2010	2011	2012
Dividends paid during the year, million tenge	6 024	7 340	19 331	60 002
Dividends per share, tenge	183	223	558,42	173,33

Source: http://www.kaztransoil.kz

During last 4 years the dividend yield was increasing proportionally to the net profit of the company.

Profit for the year, net of income tax:

	2009	2010	2011	2012
Profit for the year, net of income tax, thousands of Tenge	28312187	19618301	25945397	33501128

Source: http://www.kaztransoil.kz

The shares of JSC "KazTransOil" tendered under the "People's IPO", could rise by 25 per cent compared to May 2013, Tengrinews.kz reports citing an analytical review, which held Head of Asset Management JSC "Kazkommerts Securities" Daulet Mynzhasarov. The analyst pointed out that the first trading day, December 25, 2012, stock prices rose immediately to 850 m (at the offering price of 725 tenge). Up until January 15, prices moved within 820-830 tenge per share, but then fell quotes. According to Mynzhasarova, it is caused by someone intent of the big players to lower the market price for the subsequent massive buying of shares. "Given the nearest exit financial statements of JSC" KazTransOil "over the past year and a tentative date of payment of dividends attributable to May 2013, it is expected to increase in the target price 900-1000 tenge per share in the months prior to the payment of dividends," - says the analyst. Mynzhasarov added that dividends may be from 60 to 70 tenge per share. Those private investors that bought securities in the period of their initial public offering (from 725 tenge per share) and do not hurry to sell them with a slight increase in share price, may obtain a net profit of 21-24 percent. "Those who hurried, and their actions lowered the quotes to the level of 800 tenge per share, will receive, at best, 10 percent" - added Mynzhasarov.

Financial expert, deputy director of the Center for Public Policy Research rope Berentayev advised participants of the "People's IPO" to buy more shares until their prices have not risen. In his view, the meaning of playing the market is only for those who own a significant amount of the securities, as the contribution of the order of 20-30 thousand will bring tangible dividends that do not pay back the cost of tracking the market. At the same time Berentayev advised shareholders not to succumb to provocations unskilled IPO participants and do not rush to sell the securities, if it is done by other shareholders. Berentayev added that only monitor the situation on the stock market is not enough. In order to make long-term forecasts, it is necessary to have information on the oil and gas sector of the country and take into account all the factors that may affect the well-being published on the company's IPO. In particular, Berentayev advised to follow the events in other countries. As one example, he cited the military conflict in Algeria, where the January 16, 2013 terrorists attacked the village of oil and captured hundreds of foreign hostages.

Realizing that in the majority of the capital of Kazakhstani  JSC is concentrated, i.e. there is a clear predominance of the majority shareholders, we can say that the decision to pay dividends and their sizes, as well as all the other solutions, often taken in the interests of the majority shareholders. This situation leads to the fact that in Kazakhstan is working theory clientele.  In this case, most decisions are made on the reinvestment of profits or the payment of the minimum dividend. That is, Minority shareholders get nothing or get very little. Understanding this reality, we can say that the majority shareholders have other than dividends, methods of obtaining benefits from society. Our majority shareholders are not willing to share ownership and, until recently, because of the excess money in the economy and easy access to foreign loans did not need to create attractive for potential investors and minority shareholders image. Therefore, they could afford themselves to not to pay dividends. For the analysis of the actual practices in the dividend policy, I have decided to consider the actual dividend policy of Kazakh companies. Considering that dividend policy is written to shareholders or potential investors, I have assumed that the dividend policy should be presented online. However, I have found only two dividend policy. This does not mean that the dividend policy of Kazakh companies lack the internet, but finding them proved problematic. However, there is reference to the dividend policy in the Codes of Conduct of several companies. Both companies whose dividend policy I found are listed on the Kazakhstan Stock Exchange, which means that any investor can buy shares of the company, and the company is interested in attracting investors. First I took to review the dividend policy of the company JSC "Exploration and Production" KazMunaiGas ". The company's website published the following text:

Dividend policy

KMG EP has set its dividend policy in respect of payment of dividends on its common and preferred shares in the amount equal to 15% of their profits after tax in its consolidated IFRS accounts. The Company reserves the right to revise its dividend policy from time to time. Despite the fact that it has taken all steps to ensure that the above dates are accurate, they are subject to change and neither JSC KazMunaiGas Exploration Production ("the Company"), nor any of its shareholders, directors, officers, employees or advisers give, give, or has the authority to make a promise or warranty (express or implied) as to the accuracy of the above dates, and thus exempt from liability. Accordingly, neither the Company nor any of its shareholders, directors, officers, employees or advisers disclaim, or take over an obligation, direct or indirect, express or implied, contractual, statutory or otherwise, relating to or related to the above dates, or for any damage that may in any way to bleed out or be associated with the dates specified above. In addition, the Company reserves the right to change any of these dates on your own.  The analysis presented dividend policy shows that the company adheres to the technique constantly percentage of profit distribution. The company pays a smaller portion of the profits, apparently adhering to the expectations of the majority shareholder. From the text should clearly signal to potential investors that they can not expect a constant dividend policy, which may cause some doubt as to whether or not to invest in this company. The text is obviously a stylistic errors that may be perceived by investors as potential neglect. All together creates the impression that the company is not interested in investing. However, information on the payment of dividends for 2006 and 2007 shows that the company pays them, and the dividend has grown in 2007, which could attract investors

The second dividend policy that I've managed to find is Dividend Policy of "Kazakhtelecom" JSC. The fragment of this dividend policy is presented below:      The procedure for determining the extent of accrued dividends

3.1. The amount of dividends accrued by the Company, determined with reference to the specification. Net income (total income) shall be determined on the basis of its consolidated financial statements prepared in accordance with IFRS.

3.2. In accordance with applicable law and the Company's Board of Directors prepares proposals on the distribution of the net profit for the last financial year and the amount of the dividend for the year per ordinary share of the Company.

3.3. The Board of Directors of the Company in the preparation of proposals on the distribution of the net profit for the last financial year and the amount of dividends for the year comes from the fact that the amount available for dividends, should be at least 17.5% of net revenue.

3.4. The question of whether the payment of dividends on common and preferred shares of the quarterly, half-yearly or at the end of the year adjusted in accordance with applicable law. The question is considered by the Board of the Company on the basis of the obtained results and the financial targets of the amount of dividends on the shares of the Company.

3.5. The Board of Directors of the Company, based on the proposals of the Board of the Company, considering the main directions of the distribution of net income (total income), and forms a proposal by the share of net income (total income) allocated to dividend payments.

3.6. Formed by the Board of Directors proposals on the distribution of the net profit for the last financial year and the amount of dividend for the year per one common share of the Company. submitted to the General Meeting of Shareholders.

3.7. The final decision on the dividend amount is set by the General Meeting of Shareholders.

Analysis of the entire text of the dividend policy of JSC "Kazakhtelecom" as a whole shows that it actually gathered together the various provisions of the Law "On Joint Stock Companies" and does not provide additional information to shareholders about the policy of the stock in respect of dividends except for fixing the amount of dividends in relation to net income. Mentions of the dividend policy in the Corporate Governance different AO, which we found on the Internet, in principle, are quotations of the Law "On Joint Stock Companies". This suggests that the JSC in Kazakhstan is not ready to use the dividend policy to attract and retain shareholders.

 

Chapter 3

Problems and Opportunities of the Dividend Policy development

 

The dividend policy of JSC is one of the key instruments for the success of its operations and its financial and economic situation. In the area of ​​dividend policy of the most common are the three campaigns: dividend irrelevance theory, the theory of the materiality of the dividend policy and the theory of tax differentiation. It is natural that in an effort to ensure the development of the company, the management company aimed at increasing investment by channeling the predominant part of the profit on the development of production, and shareholders seeking to maximize dividends. These two objectives are to some extent contradictory, due to the conflicting interests of the entity and the shareholders-investors. Ensuring the optimization of the distribution of profits to pay dividends, and its market capitalization constitute one of the most important and most complex management problems AO. At this stage of development of market relations in the country would be preferable method of materiality dividend policy. Increasing the share of the profits used to pay dividends, this can increase the attractiveness of stock to investors. This policy should be linked with measures of tax differentiation. The proposed approach to the determination of dividend policy can be used as a temporary measure to enhance the attraction of investors, shareholders, especially individuals. Many of the largest companies in the world adhere to the principle of continuous dividend payments, not stopping at a certain interval of time between the payment of their losses. Analysis of the Company's dividend policy has revealed the following: often the predominant portion of the net profit of the company is capitalized, there are cases where excessive increase capital reserves, and sometimes part of the profit goes to the increase in operating capital stock as "retained earnings." Added to this is overstated depreciation, which is a form of hidden reserves of capitalization of profits. All this leads to the infringement of the interests of shareholders, investors. In recent years, the country has created a scientific and methodological basis for the implementation of the principles of effective dividend policy. Council issuers February 21, 2005 adopted a Code of Corporate Governance. Companies are encouraged to develop a position on the dividend policy, which is to ensure the transparency of the mechanism for determining the amount of the dividend and the order of payment. The Regulations on Dividend Policy should be set procedure for determining the minimum net profit of the company for the payment of dividends, as well as the method of calculating the amount of net income for purposes of determining the amount of the dividend. Effective lever of dynamic development and efficient operation of JSC Kazakhstan is a fundamental review of the dividend policy. To construct it will be useful to study and use the experience of countries with developed market economies, the choice of forms and methods of calculation of dividends. The study of domestic and foreign practice shows that the optimal allocation of profits to pay dividends, and its market capitalization is one of the most important and most complex management problems AO.