A Research On Cash Dividend Capacity And Evaluation Of Listed Companies

For the listed companies, dividend distribution is one of the core issues of financial management. For investors, share out bonus is an important way for investors obtaining investment income from the listed companies. To standardize the dividend behavior of listed companies, Regulators for a long time, issued some mandatory dividend rules. Weather these regulations can protect investors effectively, however, is a question. Many scholars shew that the mandatory or half-mandatory dividend policy is not only very good to protect investors, but also may lead to new agency problems.According to signaling theory, dividend growth is often accompanied by rising prices, because growth higher than expected dividend is a signal for investors that companies have good expectations for the future. Compared with a rights issue or sending shares, dividends requires public companies to pay real money, reflecting more internal information of listed companies. Study on China’s capital market indicates that the dividend behavior of listed companies is affected by the profitability, cash flow, company size, growth, cash, especially for factors such as retained earnings. Therefore, we can make the conclusion that dividend behavior can reflect internal information of listed companies. On the other hand, empirical research shew that valuation of listed companies is closely related to the future profit ability,--listed companies with higher valuation tend to have higher profitability in the future. This suggests that the valuation and the internal information of listed companies also has close relationship.Integrating predecessors’point of view, if we relate the dividends of listed companies with the valuation problem, this can provide certain reference value. Investment decisions, however, requires forward-looking. Share out bonus implies certain guiding significance for investment decisions suppose we use cash dividend capacity instead of cash dividend. Cash dividend capacity differs from real cash dividend in that it is the potential of the bonus share out, with characteristics of long-term, stability, and comprehensiveness, thus more predictive value is owned when making analysis. In addition, the dividends of listed companies can reflect its real dividends ability, offering policy makers a tool to make corresponding regulatory measures for different listed companies, in order to solve agency problems caused by mandatory dividends or half mandatory dividends. According to the value investment idea, making investment decisions is about measuring real value of listed companies, comparing which with its price at the moment, selling out overvalued items and buying undervalued items. Therefore, it is necessary to define the cash dividend capacity and value assessment, and establish corresponding indicators to measure them. Combining previous research results, cash dividend capacity includes three elements:sustained profitability (including main business gross profit margin, operating capital turnover, return on equity, earnings per share and main business revenue growth, etc.), cash inflows ability (including income cash ratio and free cash flow per share and free cash) and accumulation fund accumulation ability (including the net assets per share, capital reserves per share and retained earnings per share). P/E ratio, price-to-book and price-to-sales ratio made up value assessment indicators.After defining these indictors, the paper discusses the relationship between accumulated cash dividend capacity and valuation. According to the time dimension, this paper respectively to studies the cash dividend capacity of previous years, cash dividend capacity of the present year, and future cash dividend capacity.In general, there is no previous relationship between cash dividend capacity and valuation. In order to better research cash dividend capacity’s influence on valuation, the essay focuses on22SW primary industries respectively. The result shows that cash dividend capacity of catering tourism has strong effect on valuation, followed by mining, iron and steel, agriculture, information equipment and non-ferrous metals industries. Listed companies’cash dividend capacity of property, household appliances, transportation and medical industry has more and more influence on their valuation. Cash dividend capacity of listed companies in industries such as ship equipment, electronics, building materials, light industry manufacturing, retail trade and information service industries has weaker influence on valuation. From2010to2012, the relationship between cash dividend capacity and real dividends of listed companies is strengthening, implying that the influence of mandatory dividend policy on decision-making of listed companies is gradually become smaller, that capital market in China is developing better, and that the index selection of the article is relatively reasonable, withstanding the test of practice.For the A-share market, in addition to the cash dividend capacity of first and the second quarter of2011having some relationship with valuation, there is no apparent relationship of them in remaining periods. By industry, only cash dividend capacity of companies of ship equipment, electronics, information equipment and comprehensive have a great influence on the valuation. In addition, the first quarter financial data of companies in mining, catering tourism, home appliances, building materials, transportation, agriculture and comprehensiveness relates with valuation indexes more closely.Future cash dividend capacity mainly inspects several indicators of growth, then listed companies can be divided into high growth, secondary high growth, secondary low growth, low growth and negative growth. Companies with negative cash dividend capacity stand the most part of listed companies. And effective valuation index changes over future cash dividend capacity:high growth, secondary high growth and low growth of listed companies’PE ratio is more sensitive to cash dividend capacity, while companies with low growth of the future cash dividend capacity are sensitive to price-to-book ratio. Companies with low growth of the future cash dividend capacity, however, is more sensitive to price-to-sales ratio. The relationship between listed companies with future cash dividend capacity of high growth, secondary low growth and low growth and the the valuation index is relatively obvious, while the secondary highest growth and negative growth is less obvious. What is more, the relationship between listed companies with future cash dividend capacity of high growth and valuation index is the most obvious, The cause of this phenomenon may be that companies with future cash dividend capacity of low growth are blue-chip stocks.Investors can make investment decisions according to the following steps:Firstly, according to the relationship between the accumulated cash dividend capacity and the valuation, measure and adjust the corresponding valuation levels. Secondly, according to the first quarter of the present year cash dividend capacity, determine the specific listed companies with a reasonable valuation range. Again, according to the future cash dividend capacity, adjust their own judgments. To illustrate the specific steps and verify this method and examine its validity, the thesis takes information equipment as an example.