Ирина Эланс

Автор который поможет с любыми образовательными и учебными заданиями

Dividend policy

MINISTRY OF EDUCATION AND SCIENCE OF THE REPUBLIC OF KAZAKHSTAN

INTERNATIONAL ACADEMY OF BUSINESS

DEPARTMENT OF FINANCE

TERM PAPER

On discipline “Financial management”

Dividend Policy: essence and features

Done by:

3^rdyear student

F-1001

Mussin Chingiz

Checked by:

Associate professor, DBA

Omarova A.Sh.

Almaty, 2013

Content

Introduction……………………………………………………………………...…3

Chapter 1. Dividend Policy and possibility of choice………………………..…4

Chapter 2. Dividend Policy in Kazakhstani companies………………………......12

Chapter 3. Problems and Opportunities of the Dividend Policy development…...19

Conclusion………………………………………………………………….…..…22

References……………………………………………………………………..….24

Introduction

The term "dividend policy" is related to the distribution of profits in joint stock companies. However, considered the principles and methods of distribution of profit are not only applicable to public companies, but also to businesses of any other legal forms of activity. Distribution of profit in the Company represents the most sophisticated version of it, and therefore elected to consider all aspects of the mechanism. In principle, the broader interpretation of the term "dividend policy" can be to understand the mechanism of formation of the profit share paid to the owner in accordance with the proportion of its contribution to the total equity of the enterprise. The main purpose of the development dividend policy is to establish the necessary proportionality between current consumption and future owners of the profits of its growth, maximizing the market value of the company and ensuring its strategic development. With this objective notion of dividend policy can be formulated as follows: dividend policy is an integral part of the general policy of profit management is to optimize the proportions between consumption and capitalized its parts in order to maximize the market value of the company. Distribution of profits directly implements the management of the main goal - improving the welfare of the owners of the enterprise. It forms the proportions between current payments they return to capital in the form of dividends, interest and growth of these revenues in the period, due to increasing security of invested capital. At the same owners of the company independently develop these areas to meet their needs over time. The distribution of income is the main tool for influencing the growth of the market value of the company. In this form of direct impact is manifested in providing growth capital in the process of capitalization of retained earnings, and indirectly it provides the basic proportions of the distribution. The distribution of earnings is made according to the specific policy underworked, it is based on dividend policy, the formation of which is one of the most difficult tasks of a general policy of profit management company. This policy is designed to reflect the requirements of the overall development strategy, provide an increase in its market value, generate the necessary investment resources, to provide the material interests of the owners and staff. The aim of the course work is the study of the theoretical foundations of the dividend policy of the company, as well as analysis of the dividend policies of the Kazakhstani companies. To achieve this goal it is necessary to put the following tasks:

Consider the concept of dividend policy and the types of dividend payments;
To understand the contemporary politics of domestic enterprises;
To analyze the liquidity ratios and profitability;
To analyze the structure of the balance sheet;
To analyze the financial stability of the enterprise;
To analyze the potential bankruptcy of the enterprise;
To draw conclusions and to justify the proposal.

Chapter 1

Dividend Policy and possibility of choice

Third Article of the First Chapter of the Law about Joint-stock companies states that joint-stock company is a legal entity, which have right to issue shares in order to raise funds for its activities The Company owns the property, separate from the assets of its shareholders, and does not meet their obligations. The Company shall be liable for its obligations to the extent of their property.

Joint Stock Company is an organization pursuing profit as the main objective of its activity. JSC in contrast to the limited liability partnership have function of the unifying of the capital, which implies no need for personal involvement of shareholders in the business of the company. This function provides entities that are not parties of the JSC with the ability to control business of the company and to manage important issues related to the property of the company. One of the fundamental principles of the joint-stock company is the separation of the share capital of the company on an equal number of shares, each of which is expressed in share. Share is a security issued by joint-stock company and certifying the right to participate in the management of the company, right to receive the dividend on it and part of the company's assets upon liquidation, as well as other rights provided by the Law about Joint-stock companies and other legislative acts of the Republic of Kazakhstan.[1]. Shareholders have the ability to quit the company only by selling their shares to another subject. As a result, property basis of the JSC is not affected, which ensures the stability of the structure of the company (as opposed to a limited liability company, where you can go out, taking the property from the company)¹. It seems necessary to pay attention to the concept of the relationship of the shareholder and the joint-stock company. The Law states that rights of the shareholders have obligatory nature, but from the theoretical point of view this statement isn’t reasonable. Because obligation assumes that it have property nature of relations and rigid relationship between the debtor and the creditor in which the creditor is entitled to claim and the debtor is obliged to fulfill. Basic shareholder rights can be divided into four groups:

the right to participate in the management of the company;
the right to information about the activities of the company;
entitled to a share of profits (dividends) of the Company;
right to liquidation quota (part of the assets remaining after liquidation).

The first two categories of rights, as we see, are not the property (at least, this issue is controversial), which contradicts the essence of a debt relationship, the next two are different in that their implementation is not unconditional. Thus, the right to the dividend is realized only if the income is received by company and the decision to pay dividends, and not on the use of the profit in any way, the right to a liquidation quota is realized only after the liquidation of any assets remaining after satisfaction of all creditors' claims. It is also contrary to the essence of a liability relationship. In support of this situation there are two possible theoretical constructs. The first is that the relationship between the shareholder and JSC obligation arises not from the date of purchase of shares a shareholder, but with the emergence of specific conditions for the implementation of certain fixed laws is possible, for example, the adoption by the Board of Directors decides on the payment of dividends. The second construction is that the relationship between the shareholder and the company explained not in terms of obligation relations, but otherwise. The relationship of the shareholder and the company may be called corporate, thus in this context, the essence of corporate relations can be defined as follows. This is a legal relationship, which mediates the management of a legal person, carried out by the participants, combines both proprietary and non-proprietary elements and assumes conditional nature of a relationship of obligation between the parties. As a general rule, there is no shareholders' responsibility for the obligations of JSC, and they bear the risk of loss of their contribution to the company's assets, in other words - the risk of losses associated with the operations of the company to the value of shares held by individual shareholders.

Key questions solved during the implementation of the dividend policy

Dividend is the value of assets of the joint stock company to be distributed among the shareholders in proportion to their share in the net profit of the reporting period. Typically, the amount of dividends does not exceed the net profit for the period. The dividend policy of the Company includes a choice of the following issues:

1. Should the corporation pay all or part of the net profit to shareholders in the current year or invest it for future growth.

2. Under what circumstances company should change the value of the dividend yield, whether to stick in the long-term dividend policy to one or to have opportunity to be changed frequently.

3. To decide in what form payments to the shareholders should be paid either in the form of money in proportion to the existing shares, or in the form of additional shares or the repurchase of shares. Usually the term dividend is used to refer to a payout of cash, which is a shareholder’s result of the distribution of the net profits of the corporation in proportion to the number of shares. Broader concept of dividends used for any direct payments to the corporation to its shareholders. Diagrams of all payments under this approach are considered as part of the dividend policy.

4. To decide what specific payment schemes are going to be used. If cash payments are proportional to the holding of shares, then what should be the frequency of payments and their absolute value. If the repurchase of shares is specified, the company should decide what is the purchase price. Usually declared cash payment is expressed in monetary units per share, but it can be expressed as a percentage of the market price or a percentage of the profit. The dividend is declared, excluding income tax.

Since the main criterion for evaluating financial decisions is an increase in the market price of capital, it is important to understand how different factors affecting the dividend policy will be affected by the selection of capital appreciation. There are different views on the net effect of the dividend policy. In order to understand the main arguments in favor of this or that position, we consider two extreme (alternative) positions:

1) The choice of dividend policy has an impact on the price of capital, and the corporation should look for the optimal value of the dividend yield. There are to views on this position:

a) The increase in dividend increases the cost of capital (conservative or traditional theory);

b) There is an interest of shareholders in the low value of the dividend yield because, high dividend yield ratio reduces the cost of capital (radical theory) because of tax payments;

2) The supporters of alternative position argue that dividend policy does not affect the cost of capital. Thus, a second look at the dividend policy states that there is no problem of optimizing the yield and dividend payments forms

There are different types of the theories of the development of the dividend policy. The main types of which are:

Theory of preference dividends;
Theory of independence of dividends;
Theory of minimization of dividends;
Signal theory of dividends;
Theory of the effect of the clientele.

The theory of preference dividends (the theory of "bird in hand"). This theory was developed by Myron Gordon and John Lintner as a response to Modigliani and Miller's dividend irrelevance theory. Authors of bird in hand theory argued that dividends have a lower risk than a capital gain, so the company should establish a high dividend payout ratio and offer a high rate of dividend per share, to minimize the cost of its capital.

Each unit of revenue paid to investors in the form of dividends, are free from risk, and so it is worth more than the income, receipt of which is deferred to the future. Therefore, maximization of dividend payments is more preferable than income capitalization. The objections of opponents of this theory are basically boil down to the argument that the use of risk factors is impossible, since shareholder reinvests dividends in shares of this or any other company. A risk factor is taken into account individually by each investor and depends on the overall level of risk of economic activity, rather than the characteristics of the dividend policy. Bird-in-the-hand theory was criticized by Modigliani and Miller who claimed that dividend policy does not affect the firm's cost of capital and that investors are totally indifferent if they receive more dividend or capital gains. They called Gordon and Lintner's theory a bird-in-the-hand fallacy indicating that most investors will reinvest the dividend in the similar or even the same company and that company's riskiness is only affected by its cash-flows from operating assets.

The original proponents of the dividend irrelevance theory were Merton Miller and Franco Modigliani(MM). They argued that the firm’s value is determined only by its basic earning power and its business risk. In other words, MM argued that the value of the firm depends only on the income produced by its assets, not on how this income is split between dividends and retained earnings.

To understand MM’s argument, recognize that any shareholder can in theory construct his own dividend policy. For example, if a firm does not pay dividends, a shareholder who wants a 5% dividend can “create” it by selling 5% of his stock. Conversely, if a company pays a higher dividend than an investor desires, the investor can use the unwanted dividends to buy additional shares of the company’s stock. If investors could buy and sell shares and thus create their own dividend policy without incurring costs, then the firm’s dividend policy would truly be irrelevant.

In developing their dividend theory, Mm made a number of important assumptions, especially the absence of taxes and brokerage costs. If these assumptions are not true, then investors who want additional dividends must incur brokerage costs to sell shares and must pay taxes on any capital gains. Investors who do not wand dividends must incur brokerage costs to purchase shares with their dividends. Because taxes and brokerage costs certainly exist, dividends policy may well be relevant.

Tax-Preference Theory. Taxes are important considerations for investors. Remember capital gains are taxed at a lower rate than dividends. As such, investors may prefer capital gains to dividends. This is known as the "tax Preference theory".

Additionally, capital gains are not paid until an investment is actually sold. Investors can control when capital gains are realized, but, they can't control dividend payments, over which the related company has control. Capital gains are also not realized in an estate situation. For example, suppose an investor purchased a stock in a company 50 years ago. The investor held the stock until his or her death, when it is passed on to an heir. That heir does not have to pay taxes on that stock's appreciation. Litzenberger and Ramaswamy based this theory on observation of American stock market. They presented three major reasons why investors might prefer lower payout companies. Firstly, unlike dividend, long-term capital gains allow the investor to deffer tax payment until they decide to sell the stock. Because of time value effects, tax paid immediately has a higher effective capital cost than the same tax paid in the future. Secondly, up until 1986 all dividend and only 40 percent of capital gains were taxed. At a taxation rate of 50%, this gives us a 50% tax rate on dividends and (0,4)(0,5) = 20% on long-term capital gains. Therefore, investors might want the companies to retain their earnings in order to avoid higher taxes. As of 1989 dividend and capital gains tax rates are equal but defferal issue still remains. Finally, if a stockholder dies, no capital gains tax is collected at all. Those who inherit the stocks can sell them on the death day at their base costs and avoid capital gains tax payment. The dividend-irrelevance theory, recall, with no taxes or bankruptcy costs, assumes that a company's dividend policy is irrelevant. The dividend-irrelevance theory indicates that there is no effect from dividends on a company's capital structure or stock price. MM's dividend-irrelevance theory assumes that investors can affect their return on a stock regardless of the stock's dividend. As such, the dividend is irrelevant to an investor, meaning investors care little about a company's dividend policy when making their purchasing decision since they can simulate their own dividend policy. Recall that the MM's dividend-irrelevance theory says that investors can affect their return on a stock regardless of the stock's dividend. As a result, a stockholder can construct his or her own dividend policy. Suppose, from an investor's perspective, that a company's dividend is too big. That investor could then buy more stock with the dividend that is over the investor's expectations. Likewise, if, from an investor's perspective, a company's dividend is too small, an investor can sell some of the company's stock to replicate the cash flow the investor expected. As such, the dividend is irrelevant to an investor, meaning investors care little about a company's dividend policy since they can simulate their own. Much like a company can signal the state of its operations through its use of capital-financing projects, management can also signal its company's earnings forecast through changes in its dividend policy.

Dividends are paid out when a company satisfies its internal needs for cash. If a company cuts its dividends, stockholders may become worried that the company is not generating enough earnings to satisfy its internal needs for cash as well as pay out its current dividend. A stock may decline in this instance. Suppose for example Newco decides to cuts its dividend to $0.25 per share from its initial value of $0.50 per share. How would this be perceived by investors? Most likely the cut in dividend by Newco would be perceived negatively by investors. Investors would assume that the company is beginning to go through some tough times and the company is trying to preserve cash. This would indicate that the business may be slowing or earnings are not growing at the rate it once had. The Clientele Effect.

A company's change in dividend policy may impact in the company's stock price given changes in the "clientele" interested in owning the company's stock. Depending on their personal tax situation, some stockholders may prefer capital gains over dividends and vice versa as capital gains are taxed at a lower rate than dividends. The clientele effect is simply different stockholders' preference on receiving dividends compared to capital gains. For example, a stockholder in a high tax bracket may favor stocks with low dividend payouts compared to a stockholder in a low tax-bracket who may favor stocks with higher dividend payouts.

The residual-dividend model is a model that a company can utilize to set a target dividend payout ratio. The residual-dividend model is based on three key pieces:

1.An investment opportunity schedule (IOS),

2.Target capital structure

3.Cost of external capital

Procedure for the Residual-Dividend Model

1.The first step in the residual dividend model to set a target dividend payout ratio to determine the optimal capital budget.

2.Then, management must determine the equity amount needed to finance the optimal capital budget. This should be done primarily through retained earnings.

3.The dividends then are paid out with the leftover, or residual, earnings. Given the use of residual earnings, the model is known as the "residual-dividend model".

As an example, Newco generates sales of $7 million with earnings of $2 million. The company's optimal capital structure is 50% equity/50% debt. With $2 million in earnings, Newco reinvests the entire amount back into the company. In this case, Newco would have to borrow $2 million to maintain its optimal capital structure.

If Newco, however, needed to reinvest only half of the $2 million back into the company, Newco would then have $1 million in residual earnings to pay dividends. Given the reduced reinvestment, the company would thus have to borrow only $1 million to maintain its optimal capital structure. Advantage of the Residual-Dividend Model.With capital-projects budgeting, the residual-dividend model is useful in setting longer-term dividend policy.

Disadvantage of the Residual Dividend Model. Dividends may be unstable. Earnings from year to year can vary depending on business situations. As such, it is difficult to maintain with certainty stable earnings and thus a stable dividend.

While the residual-dividend model is useful for longer-term planning, many firms do not use the model in calculating dividends each quarter.

Dividend payouts follow a set procedure as follows:

1.Declaration Date

Declaration date is the announcement that the company's board of directors approved the payment of the dividend.

2.Ex-Dividend Date

The ex-dividend date is the date on which investors are cut off from receiving a dividend. If for example, an investor purchases a stock on the ex-dividend date, that investor will not receive the dividend. This date is two business days before the holder-of-record date. The ex-dividend date is important as, from this date and forward, new stockholders will not receive the dividend. As a result, the stock price of the company will be reflective of this. For example, on and after the ex-dividend date, a stock most likely trades at lower price, as the stock price is adjusted for the dividend that the new holder will not receive.

3. Holder-of-Record Date

The holder-of-record (owner-of-record) date is the date on which the stockholders who are to receive the dividend are recognized.

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.