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The latest trading
price of Dialog Axiata PLC is LKR 10.70 i.e. as at 24 November 2015. The below
chart analyze movement of Dialog Axiata PLC for the past 5 years. This is
indicating a “Head and Shoulder Price Movement Pattern” which is once a trader is aware of what they are
watching for. The pattern appears on all times frames and can therefore be used
by day and swing traders as well as investors. Entry levels, stop levels and
price targets make the formation easy to implement as the chart pattern provides
important and easy-to-see levels.

Year

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2010

2011

2012

2013

2014

Share Price

12.0

8.4

8.4

9.0

13.3

 

(CSE, 2015)

It can be said that the
share prices will follow the same fluctuation patterns in the coming years. The
high trading volume and market capitalization indicates the public nature of
the share prices. Therefore, the reliability of the MPS is high.

 

 

 

 

 

 

 

 

 

 

In determining the
equity valuation, the following methods can be used,

Expected Dividends

Dividend per share from 2010-2014

2014

2013

2012

2011

2010

0.13

0.29

0.33

0.25

0.2

Geometric Growth Rate of the dividends paid

((0.13/0.2)^(1/4))-1

-10%

Estimated Dividend per share for 2015, 2016 and 2017

2015

(0.13* -10%)+(0.13))

0.117

2016

(.117*-10%)+(0.117)

0.105300

2017

(.1183*-10%)+(0.1183)

0.1065

The geometric growth rate takes
the movements into consideration therefore using this is appropriate when
estimating future dividend payments. It should be noted that Dialog Axiata PLC
is intended on keeping reserves for the investments. Since they are considered
to be pioneers in providing the newest technology/

 

 

Importance of
Dividend policy to a company to achieve the objectives of Financial Management

 

Dividend policy is concerned with
financial policies regarding paying cash dividend in the present or paying an
increased dividend at a later stage. Whether to issue dividend, and what amount
is determined mainly on the basis of the company’s inappropriate profit and
influenced by the company’s long term earning power. When cash surplus exists
and is not needed by the firm, then management is expected to pay out some or
all of those surplus earnings in the form of cash dividends or to repurchase
the company’s stock through a share buyback.

 

Primary objective of financial
management is to increase the shareholder wealth, in order to do so companies,
have to invest their excess cash on positive NPV projects. For people who value
profit certainty of a company, a sound dividend policy is important. It follows
that a high and regular corporate dividend policy means that companies have a
benchmark for doing well. Therefore more dividends can equate to the overall
health of the company. Dividend policies are more valuable to small companies
or cooperatives with excess cash and a few good projects where the NPV of the
projects is positive. Meanwhile companies, without excess cash but have several
good projects where NPV is also positive will only derail the undertaking of
current projects. While a good corporate dividend policy is equated to excess
cash, the value of the company is not hinged on the value of dividends as there
are other indicators of a company’s performance.

 

Deciding the dividend policy will
give a signal to the market (Signaling theory) which could affect the company
negatively or positive. A higher dividend payment will give a signal to the
investors that the company doesn’t have much more investment opportunities and
lacking of future growth potential, serious investors will drop those shares
from their portfolio eventually would lead to decrease of share price. A
residual dividend policy, where dividends are paid after considering Positive
NPV projects. Those company’s gives a signal to the market that they have good
projects to invest & have good potential in future. Where investors will be
attracted to those companies & will lead to increase of share price.
Ultimate objective of Financial management is being met.

 

At the end the value of the
dividend policy falls on investors decisions. While there are contrasting views
of its usefulness. Where a theory brought up by Modigliani Miller(MM). They
argue that dividend policy is irrelevant & investors can make their own
dividend.

 

 

 

Explanation
of the Systematic & unsystematic concept.

 

Systematic risk, also known as
non-diversifiable or market risk, is the risk that affects the entire market or
economy. In contrast, on systematic risk is the risk that pertains to a single
company or industry and is also known as company
specific,industry-specific,diversifiable risk.

 

Systematic
risk

 

This is the risk that cannot be
avoided and is inherent in the overall market. It is non-diversifiable because
it includes risk factors that are innate within the market and affect the
market as a whole.

Examples of factors that
constitute systematic risk for Dialog Axiata PLC include,

 

Inflation
risk

 

If the inflation rate in the
country goes up, investors will get demotivated due to erosion in the
purchasing power. This is because inflation will shrink the value of the
domestic currency, and therefore the share price will go down. In other words,
prices anticipated will differ from what we had anticipated for Dialog Axiata
PLC’s common stocks.

 

Interest
rate risk

 

If the interest rates go up in
the country, the cost of borrowing will go high. If the cost of borrowing goes
up, then the investors will not have enough funds to invest in shares due to
increased cost of borrowing. And investors will prefer saving money rather than
investing due to getting a better return on saving. So the prices forecasted
will be different

 

Political
& regulatory risk

 

If the political
environment is unstable and corrupted, investors will refrain from investing in
the share market and Dialog Axiata will not be able to achieve the desired
goals. Dialog had to pay a Rest 1bn tax soon after the results of presidential
election 2015.

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