Abstract

In March 2017, Hindustan Zinc Limited (HZL), a subsidiary of multinational mining company Vedanta Limited, announced a special one-time interim dividend of Rs.27.50 per share with a face value of Rs.2 each share. The total dividend of Rs.271,570.00 million paid during the year 2016-17 was the highest dividend paid ever paid by an Indian company in a financial year. However, things started changing after the announcement of the special interim dividend – the price of the company’s shares started declining from March 2017. According to an independent investment advisory organization, HZL was one of the top 73 BSE S&P 500 companies with a potential to pay a higher dividend than it had been paying due to its strong fundamentals in terms of operating margins and financial position. Despite all these positive factors, the declining trend in the share price remained a cause for concern for the shareholders as well as for the company. The management of HZL needed to look into the issue to understand the main reasons for the drop in share prices.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Identify the factors determining the dividend policy of a firm
• Apply MM-hypothesis to a company
• Analyse HZL’s Dividend Policy using MM-hypothesis

Keywords

Hindustan Zinc Limited,Vedanta Limited,Dividend Policy,MM-Hypothesis,Modigliani-Miller theorem,Dividend Payout,Perfect Capital Markets,Investment Policy