Relationship Between Profit And Dividend Of Top 30 ASX Listed Companies

Background of the Study

Create an understanding between the relationship that is related to the profit and the dividend of the top 30 ASX listed companies. 

The companies that are operational in the economy from the time of the development of the economies, each and every organization has the aim of attaining profit in order to stay alive in the market and accordingly develop their business and maintain competitive edge. The organizations in order to enhance their business look to gather external capital (Kajola et al., 2015). The external capital is either taken in the aspect of loan or in the kind of selling equities in the market and thereby receiving external finance from investors.

The stock market has a significant role to play in enhancing the quality and operations of the financial model in the companies that have been accepted. The financial decisions of the companies is related to the allocation of the earnings per share, which has a comprehensive role to play with the help of which the companies are able to enhance the savings in the private sector to the manufacturing and the capturing of the public contribution with the help of undertaking investments in the organizations (Kajola et al., 2015). The dividend with the help of cash because of the objectivity and the tangibility has extensive functions among the stakeholders of the organization.

There are several kinds of companies that are operational within the Australian economy and each one of them belong from different industries and have their unique style of operating their business. The companies need to be listed in any of the global securities exchange and Australian Securities Exchange (ASX) is the exchange that operates from the Australia. There are several companies that are listed in the ASX and therefore they have the potential and the ability to interact in the stock exchange and sell or buy back their shares from the market (Manneh, & Naser 2015). The shares are priced according to the demand in the market, the profit that is earned and accordingly the dividend that is paid out to their shareholders (Baños-Caballero et al., 2014). It has become pertinent to understand the relationship among the profit and the dividend that is attained by the companies and therefore an examination of the same is being undertaken in this paper.

The companies functioning in the economy of Australia are all in the look out of making profits and therefore it becomes essential for the companies to understand their operational activities. In the same way, it becomes essential to assess the relationship among the profits earned by the profit and the dividend that is paid out by them to their shareholders in order to understand the percentage of the profit that is paid out to the shareholders (Firth et al., 2016). The current paper is looking to assess the relationship among the profitability of the top 30 companies that are listed in ASX and this assessment of the relationship is done in order to have an overall idea about the extent of relationship profit and dividend have on each other on the ASX listed companies. The completion of the paper with the help of data analysis would be helpful in determining the extent of relationship according to which the conclusion on this topic can be constructed.

Justification of the paper

The concerned paper can only move ahead once the aims and the objectives in accordance to which the data would be gathered and the elements with respect to which analysis would be completed is highlighted. Therefore, the aim of this paper is:

• To assess and understand the relationship among profit earned and the dividend paid by the top 30 ASX listed companies within the time period of 2014-2017.

The “research question” is constructed in order to focus on answering the issue at the completion of the paper. The research question is as follows:

Q1. What is the relationship between the profit and the dividend of the top 30 ASX listed companies?

Introduction 

The “literature review” would assess the elements and the theories that are associated with the dividend and the profit aspects of the companies and would even focus on the elements and the aspects on which explanations have been given out by the other researchers who have done researches on similar kinds of topics in the past.

Theories of Dividends 

Dividend Irrelevance Theory 

This theory tries to explain that the dividend policies that are utilised by the companies has no level of impact on the profit and the value of the companies. Hussain, & Ahmad (2015) debated that the value of a company is reliant on the income of the company that takes place from the policies related to investment. Therefore, the dividend paid to the shareholders has no impact on it. Henry, & Koski (2017) explained that in a perfect market scenario, the dividend policies have no significance with the profit and the value of an organization as the investments in this scenario are constant.

This theory has looked to address the fact that dividend policies have an impact in the level of external financing, which is essential in order to fund any future projects of the company. This explains that the worth of money that is given out as dividends to the shareholders is the money that is lost from the capital (Tahir et al., 2016). This theory even explains the fact that the only limitation seen in the market value of a company has been their investment policy and not the dividend policy as the investment policy is accountable for the future profits of the companies. Therefore, the theory has put forth the fact that the profit of the companies is dependent in the current and future cash flows and dividend paid only reduces the profit and the capital from the companies.

Agency Theory 

The existence of agency theory takes place when the founder of the business is not able to manage the business and therefore delegates the power to an agent. The issue related to agency takes place right after the goal and the desires of the owner and the agent face certain conflicts. It is very hard and expensive for the owner to observe and control the work that is done by the agents in order to sure about the fact that the agents function for the benefit of the company as well as for the owner (Przychodzen, & Przychodzen 2015). Therefore, this theory is helpful in resolving the issues related to the agents and the owners with the outlook to ensure effective relationship among them.

Research Aims and Objectives

This theory is based on the aspect that the shareholder’s interest and the management are not in line in an effective way in order to assist the company to function for a general goal, which can be attaining the objectives that have been constructed by the companies (Muhammad et al., 2015). The agency theory has a vital role to play in undertaking financial decisions due to the issues that arises among the holders of the debts and the shareholders.

The agency theory explains the fact that the management of a firm is looking to increase the extent of cash flow even in circumstances when there is a no opportunities of investment so that the money can be utilised by the managers for their own advantage other than developing the profit for the company (Kanwal, & Hameed 2017).

Determinants of Profit 

Liquidity 

Michiels et al., (2015) explained that liquidity is one of the several aspects that is helpful in determining the maintenance of profits. Liquidity scenario addresses the liquid cash that is available for the company in order to pay for their short term liabilities and expenses and even have certain amount of money with the help of which the companies would be able to make investments as well. Liquidity is able to address the capability of a company in order to satisfy the unexpected and the expected desires related to cash on a consistent manner (Yegon et al., 2014). An organization has to remain liquid at all point of time in order to stay alive in the market and the level liquid capital available to an organization determines the level of profit with the assistance of which the firms are capable of paying off their obligations at any point of time (Ka?mierska-Jó?wiak, 2015). The process of liquidity is assessed with the help of the cash and items that are equivalent to cash, which is divided by the overall asset of the company (Di Giuli, & Kostovetsky 2014). It is seen that liquidity of an organization is related positively with the financial performance of a company.

Leverage 

Debt is regarded to be a source of funding that is used for the purpose of strengthening their capital in order to increase the level of profit. Leverage even has an effect on the financial performance of the firms and it explains the level to which the companies are exploring the money that has been taken as loan (Bartram et al., 2015). It addresses the positive impacts on the capital as well as on the additional shortages in the fund because of the claims that have been done monetarily. Leverage has the capability to enhancing the profitability of the companies if the gathered debt is utilised in an effective manner. A company that is profitable will look to pay their dividends to the shareholders of the company.

Research Question

Summary of the Literature 

The literature that is constructed has looked to address the aspects of dividend and even the aspects that are related to the profitability of the companies with the assistance of which the firms are able to increase their potential and preserve profit and provide dividends with the help of which the companies can maintain an effective operational structure within the economy.

Introduction 

The “research methodology” has the intention of explaining the techniques and the processes that are used in order to have an idea about the data that is ideal for this research. There are several kinds of data that are available to the researchers and it is seen that there is a rise in the proficiency of the results if the effective data is utilised. The process of gathering the data and the approach that is used is even explained with the assistance of which effectual results can be attained.

Research Approach 

The approach of the methodology has tried to explain the theories and the structures that would be used with the assistance of which the gathered data would be placed within the structure and better theories can be generated. There are two sorts of approaches that researchers can make use of and they are deductive and inductive approach (Bradbury, 2015). It is known widely that this paper will be making use of the secondary data and therefore would be making use of the structures and the theories that were available in the economy as others have used it and therefore deductive approach will be used in this paper.

Research Design 

The research deign is associated with having a clear idea of the design and the model that would be used by the researcher with the assistance of which the researcher is capable of understanding the precise design with the assistance of which the data would be collected and used with the help of which results related to this paper can be obtained (Akhtar, 2018). There are several kinds of designs that can be used by the researcher however, in order to gather the reliability of the results the researcher has made use of the explanatory design with the help of which cause and effect relationship can be attained and therefore the relationship among profit and dividends of the concerned companies would be known in a better way (Ahmed, 2015).                   

Kind of Data

The researcher in this paper has undertaken quantitative data and therefore has undertaken quantitative data analysis with the assistance of which the profits and dividends of the companies would be collected and accordingly these figures would be put forth in tables and figures in order to undertake correlation and regression analysis with the help of which the relationship among the profit and dividend would be gathered and precise results can be collected.

Literature Review

Secondary Data 

The thesis has made use of secondary data because of the fact that secondary data is the most precise form of data that is ideal for the gathering of the results that is ideally suitable (Ali et al., 2015). The secondary data has been collected with the help of several journals, articles and websites that has offered the data that would be ideal for the completion of the results related to this topic.  

Data Collection Process 

The data related to the top 30 companies listed in ASX has been collected with the help of the several websites and internet sources so that precise and authentic figures can be collected. The annual reports of the companies as well as the ASX websites have been taken into consideration with the help of which the figures can be identified and accordingly can be used (ASX 50 List – Data for ASX Top 50 Companies. 2018).            

Data analysis plan 

The analysis of the data is undertaken with the help of Microsoft Excel Spreadsheet within which the data are inserted and thereby “correlation and regression” analysis is undertaken in order to discover the precise results for the paper.

Ethical Consideration 

The researcher in this paper has preserved effective ethics and thus has looked into the codes of ethics that have been laid down by several international and domestic bodies with the assistance of which authentic and precise outcome can be collected for this paper (Sharif et al., 2015).

Introduction 

The analysis of the data would be done in this section of the paper and the collected data for the top 30 ASX listed companies would be assessed with the help of correlation and regression analysis and accordingly effective outcome can be achieved.

Correlation Analysis 

	Profit_2014	Profit_2015	Profit_2016	Profit_2017	Dividend_2014	Dividend_2015	Dividend_2016	Dividend_2017
Profit_2014	1
Profit_2015	0.478467389	1
Profit_2016	0.213041585	0.553231687	1
Profit_2017	0.81785859	0.471106017	0.570423056	1
Dividend_2014	0.699951546	0.542244087	0.413785716	0.732495288	1
Dividend_2015	0.656681489	0.525870242	0.39590378	0.69270342	0.9882507	1
Dividend_2016	0.541274717	0.548344171	0.448484497	0.609196	0.947626651	0.970553636	1
Dividend_2017	0.48857303	0.492552978	0.499474379	0.620261267	0.917450561	0.943130458	0.9791969	1

	Profit	Dividend
Profit	1
Dividend	0.734038982	1

The correlation analysis has been done for the profits and the dividends of the 30 ASX listed companies and the results that have attained has explained the fact that all the figures are found to be positive and the values are pretty much close to 1 and thereby indicating the fact that there is a strong and positive correlation among all the variables in each of the four years that has been taken into consideration and therefore can be explained that profit and dividend has relationship among each other.   

The overall correlation among the dividend and the profit for the four years has been that there is a positive and strong correlation among them.

Regression Analysis 

Regression Statistics
Multiple R	0.734038982
R Square	0.538813228
Adjusted R Square	0.522342271
Standard Error	0.965157327
Observations	30

ANOVA
	df	SS	MS	F	Significance F
Regression	1	30.47303154	30.47303154	32.7129295	3.90285E-06
Residual	28	26.08280262	0.931528665
Total	29	56.55583417

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	0.45568664	0.230568811	1.976358545	0.058040508	-0.016612153	0.927985433	-0.016612	0.92798543
Profit	0.000408469	7.14166E-05	5.719521789	3.90285E-06	0.000262179	0.000554759	0.0002622	0.00055476

The overall regression analysis that has been determined has been able to explain the fact that there is a small amount of relationship among the profits of the companies for the last four years (2014-2017) as the R square value is close to the adjusted R square value and the results even signify the fact that significance among the values of profits and dividend is available among the top 30 companies. The normality graph expresses the fact that the variables have been stable within the time frame, which suggests that the results have significance and the variables have some sort of relationship with one another.    

The results therefore has been able to explain the fact that there has been significance among the values that have been obtained and there is a small amount of relationship among dividend and profit of the companies as the results explain that relationship among the two variables are positive and any change in one of the two variables have negligible amount of changes on the other and therefore they go hand by hand.   

Conclusion

The outcome of the paper has been possible by taking assistance of the quantitative regression analysis and correlation analysis. The data has been collected with the help of reviewing the annual reports and several other internet websites and accordingly the desired results have been obtained. The outcome therefore signifies that there exists a small amount of relationship among the profits and the dividends of the companies and the results obtained are significant and therefore one can say that the outcome of the paper has been able to explain and answer the objectives of the paper that has been prepared earlier in this paper.

The outcome has been helpful in the development of recommendations with the help of which better and effective results can be obtained in the future course of time. The results therefore signify the fact that much better results would have been obtained if a larger observation variable would have been taken into consideration. Therefore a larger year frame for the profits and the dividends of the companies would lead to much better and effective results. It is even recommended that the companies construct plans and policies related to their profit and dividend policies in order to increase their level of profits and thereby are able to pay better dividends with the help of which they would be able to satisfy their shareholders and accordingly would be able to maintain a share in the market. 

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