The Progressive Dividend Policy of Sainsbury and Burberry

The Progressive Dividend Policy of Sainsbury and Burberry

After reading "Burberry plans to move more upmarket to be 'firmly in luxury' "and "Opening Quote: Sainsbury's cutting costs, Burberry's cutting remarks" in Financial Times, I have discovered, Burberry and Sainsbury has plans to cut costs, and they are going to a progressive dividend policy.


The progressive dividend policy applies to companies that are mature, with less demand for capacity expansion, and stable profitability. Burberry's new chief executive, Marco Gobbetti, said they would not bring profits down and would return excess cash. They want to tell shareholders that such a choice would bring better value to shareholders. Nevertheless, Sainsbury's grocery sales growth slowed in the first half of this year, the basic operating margins also fell, however, its annual pre-tax profit forecast is still in line with the current market consensus, this means that the second half of the recovery and profit growth, makes the shareholders more at ease.

The difference is that Burberry, as a fashion manufacturer, is committed to not only cutting costs but also creating a brand that will appeal to customers and have a unique style. So Mr Gobbetti plans to withdraw from wholesale and retail outlets. Although this may affect revenues. On the other hand, the Sainsbury group will reduce costs by cutting jobs and working with suppliers to reduce the impact of inflation.



According to the "Bird-in-the-hand" theory, when the company raises the dividend payout ratio, it reduces uncertainty, and investors can demand a lower return rate, and the stock price of the company rises. Therefore, I think that is why Burberry has adopted a progressive dividend policy, as Burberry's shares have fallen by 10% on Thursday.

For Sainsbury, I think it is based on the M&M theory for a progressive dividend policy. The value of the company depends only on the operating efficiency of the company's assets, and rational investors will not change the evaluation of the company because of the allocation proportion. Hence Sainsbury's aim of increasing retail sales and increasing the proportion of the market, Sainsbury's had enough surplus to gradually increase its dividend distribution.

Although both Burberry and Sainsbury have opted for a progressive dividend policy, I think there are still some drawbacks to this policy. If the dividend distribution increases gradually, directors may be inclined to be more cautious because they cannot be sure that they will maintain this level in the future.

The dividend policy still requires the company to choose depend on the operating conditions and the development cycle. Dividend policy is not necessarily a single one, but the most important thing is to formulate policies suitable for the company itself.






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