The purpose of the following report is to analyse the dividend policy of Logica PLC and BP PLC over the last five years. Firstly, the dividend policy of BP PLC as well as Logica PLC over the last five years will be analysed. Secondly, based on that analysis, the dividend policies of both companies will be compared. Then the Lintner’s Model of the dividend policy will be reviewed and it will be identified how the dividend policy of both companies can be explained by this model. Moreover, the report includes a brief discussion of the skills developed during the project.


1.1. British Petroleum PLC (BP PLC)
BP PLC is considered to be the market leader in exploration and production, gas, power, and refining and marketing chemicals. Exploration and production activities include oil and natural gas exploration and field development and production (upstream activities); together with pipeline transportation and natural gas processing (midstream activities).

Gas and power activities include marketing and trading of natural gas, liquefied natural gas, and power, the development of international opportunities that investigate gas resources and involvement in select power projects. The activities of refining and marketing include oil supply and trading as well as refining and marketing (downstream activities).

BP PLC pays to its shareholders dividends every three months, i.e., quarterly, in cash. Due to the fact that LogicaCMG PLC follows a policy of yearly dividend payments, for the comparison of the dividend policy of both companies, the annual results for two companies will be analysed. However, for 2003, 9 months’ results will be taken for the analysis for BP PLC.

Dividends (pence perordinary share) BP PLC
1999 2000 2001 2002 2003 9mths
First quarter 3,069 3,220 3,665 4,051 6,61
Second quarter 3,112 3,352 3,911 3,875 8,67
Third quarter 3,033 3,602 3,805 3,897 8,07
Fourth quarter 3,125 3,617 4,055 3,815
Year 12,339 13,791 15,436 15,638 27,18


All figures were obtainedfrom the companies’ websites: and

For the more comprehensive analysis the dividend growth rate figure should be calculated, thus:

Year 1999 2000 2001 2002 2003 9mths
Dividends per Share (cents) 20,000 20,500 22,000 18,320 43,76
Dividends Growth Rate 0,500 1,500 -3,680 25,440


Figure 1

From the above tables and graph it is obvious that the financial situation in BP PLC compared with the last four years has been improved. As the BP PLC Chief Executive, Lord Browne, said: “This has been another good quarter and a strong financial result. We continue to invest steadily against a clear set of strategic goals, and to drive hard on operations where there is room for improvement.”

However, to analyse the dividend policy more accurately the Earnings per Share (EPS) as well as Payout Ration should be reviewed.

Year 1999 2000 2001 2002 2003
EPS, cents 25,68 54,48 35,48 30,55
EPS Growth Rate 28,8 -19 -4,93


At the time of writing, the EPS figures for 2003 year are not yet publicly available. Nevertheless, from the above figures it is obvious that they are pretty volatile. However, for a more comprehensive result EPS figures should be compared with DPS (Dividends per Share) figures. Thus:

Year 1999 2000 2001 2002 2003
EPS, cents 25,68 54,48 35,48 30,55
EPS GrowthRate 28,8 -19 -4,93
Dividendsper share (cents) 20,000 20,500 22,000 18,320 43,76
DividendGrowth Rate 0,500 1,500 -3,680 25,440


From the table above it can be seen that dividends per share were increased, while EPS were decreased. Such contradiction probably means that the managers of BP PLC prefer stable dividend levels to stable payout ratio:

Year 1999 2000 2001 2002 2003
Dividends per share (cents) 20,000 20,500 22,000 18,320 43,76
EPS, cents 25,68 54,48 35,48 30,55
Payout Ratio 0,778816 0,376285 0,620068 0,599673


Because of the decrease of EPS there is a decline in the payout ratio figure, graphically:

Figure 2

Figure 3

1.2. Logica PLC
LogicaCMG PLC previously known as Logica PLC is a major internationalforce in IT services and wireless telecoms. It provides management andIT consultancy, systems integration and outsourcing services to clientsacross diverse markets including telecoms, financial services, energyand utilities, industry, distribution, transport and the public sector.Formed in December 2002, through the merger of Logica and CMG, thecompany makes its business in 34 countries and has nearly 40 years ofexperience in IT services. Headquartered in Europe, LogicaCMG is listedon both the London and Amsterdam stock exchanges (

LogicaCMG PLC pays dividends to its shareholders annually in cash. Table below presents DPS that the Company has paid over the last five years. At the time of writing, the results for 2003 are not yet publicly available, therefore, for this year, the six months ended at the 30th of June so available results will be analysed:

Year 1999 2000 2001 2002 2003 (6mth)
DPS, pence 2,92 3,82 5 3 2,3
DPS Growth Rate 0,9 1,18 -2 -0,7


From the above table it is clear that the DPS of LogicaCMG has beendecreasing over the last 5 years however, the management of theCompany believes that at the end of 2003 the situation will be improved(

Figure 4

For the more broad analysis EPS figures will be presented in the table below with DPS figures for comparison:

Year 1999 2000 2001 2002 2003 (6mth)
DPS, pence 2,92 3,82 5 3 2,3
DPS Growth Rate 0,9 1,18 -2 -0,7
EPS, pence 10,5 17 20,8 10,9 7
EPS Growth Rate 6,5 3,8 -9,9 -3,9


From the above comparison it can be observed that EPS growth rate is more volatile over the last 5 years, although the DPS growth rate is indeed unstable but as the EPS growth rate.

Figure 5

From the above table and graphs it can be seen that although the DPS in2003 has decreased by more than 23%, the EPS has declined by almost36%.

Such declines have occurred due to the fact that, as alreadymentioned, in December 2002 the Company Logica PLC merged with CMG.Therefore, it can be stated that LogicaCMG PLC focuses its dividendpolicy on paying steady dividends to its shareholders.

However,the payout ratio, or as Lintner named it ‘target ratio’, of the Company shouldbe observed:

Year 1999 2000 2001 2002 2003 (6mth)
Target Ratio 0,278095 0,224706 0,240385 0,275229 0,328571429


Figure 6

Despite the fact that DPS and EPS has declined significantly over the last two years the target ratio remains increasing slightly. Such facts also illustrate that the Company follows the stable dividend policy.

Thus, from the above analysis it is obvious that LogicaCMG follows a stable dividend policy, although the last two years were a hard period due to the merger.

The above analysis of the dividend policies of BP PLC and LogicaCMG PLCrevealed that both companies pay dividends to the shareholders in cashevenly. However, the BP PLC pays its dividends quarterly, whereasLogicaCMG PLC pays annually.

Both companies have higher volatility in EPS than in dividends per share paid, which probably means that steady dividends per share were favoured to steady payout ratio. Such preference represents the main basis of both companies’ dividend policies. Nevertheless, it should be mentioned here that there are different reasons for the volatility in both companies, although the reasons have the same features. BP PLC acquired TNK Company in August 2003, whereas LogicaCMG PLC passed the merger process with CMG in 2002. The TNK-BP deal was completed on 29 August: the third quarter results and production reflect a strong contribution from the joint venture (, while the merger process for the LogicaCMG PLC was not so smooth and successful. The table and graph below show that LogicaCMG prefers stable target ratio while for BP’s managers, steady target ration is not the main issue:

Year 1999 2000 2001 2002
Logica 0,278095 0,224706 0,240385 0,275229
BP 0,778816 0,376285 0,620068 0,599673


Figure 7

From the above graphs it can be observed again that LogicaCMG PLC has a less volatile payout ratio than BP PLC does, and probably that is why Logica’s payout ratio is in general lower that BP’s

For the comparison ofdividend policies of BP PLC and LogicaCMG PLC Lintner’s Model has been used.
Briefly Lintner’s model canbe outlined in four main issues:

  1. “Firms have long-run target dividend payout ratio
  2. Managers focus more on dividend changes than on absolute levels
  3. Dividend changes follow shifts in long-run, sustainable earnings (Managers “smooth” dividends)
  4. Managers are reluctant to make dividend changes that might have to be reversed.” (Brealey and Myers, 2000)

Indeed, the above analysisis further empirical evidence of these four points.
As it was observed both companies follow the stable payout ratiopolicy, which proves the first issue of the Lintner’s Model.

Secondlythe dividend changes have shown more clearly results, thus it isobviously better to focus on the change rate than on absolute figures.Moreover, as the second issue states: “paying a $2.00 dividend is animportant financial decision if last year’s dividend was $1.00, but nobig deal if last year’s dividend was $2.00″ (Brealey and Myers, 2000).

Thirdly, as analysis revealed temporary earnings changes are unlikely to affect dividend payouts.

Lastly, managers of bothcompanies prefer stable dividends per share payments than to rescinding a dividendincrease.

Lintner’s Model simplyexplains dividend payments policy: “Suppose that a firm always stuck to itstarget payout ratio. Then the dividend payment in the coming year (DIV1)would equal a constant proportion of EPS1
DIV1= target dividend = target ratio x EPS1
The dividend change would equal
DIV1– DIV0 = target change = target ratio x EPS1 – DIV0” (Brealeyand Myers, 2000)
In general Lintner’sobservation revealed that mangers, however, prefer stable dividends payment tosteady payout ratio. This is can be illustrated by the formula:
DIV1– DIV0 = adjustment rate x target change = adjustment rate x (targetratio x EPS1 – DIV0)
In other words, the moreconservative dividend policy will lead to the slow move to the target and as aresult the lower adjustment rate.

Certainly, the analysis anddiscussions made in the first section again can be justified by this model. Itwas found that the payout ratio is highly dependable on the volatility ofthe EPS. Moreover, Logica’s target ratio is more stable than BP’s one, and suchstability (conservatism) reflects in the low dividends payments, while BP’smangers prefer volatile payout ratio and higher dividends payments.

To summarise the above critical review of the Lintner’s Model, it is hard to deny its simplicity and appropriateness for the dividend policy analysis.

During the project, different skills were developed and improved, particularly now I am more confident in searching financial data of different companies via the Internet and in reading and comprehension of these data. Certainly, the search, analysis and comparison of these data improved my research skills which indeed will be helpful in further higher education. Surely, all these mentioned skills can be classified as general. So, the most important professional skill that was developed is understanding the main basics of a dividend policy, which indeed will be really useful in a future career. Last, but not least, the project improved my English, particularly, in academic writing.


Books and Articles:
Brealey, R. A. and Myers, S. (2000). Principals of Corporate Finance, 6th Edition, Irwin McGeaw-Hill, London

Brealey, R. A. (1999). Does dividend policy matter?

Woolridge, J. R. and Ghosh, C. (1998). Dividend cuts: do they always signal bad news?



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