Sandarajan plc has recently obtained a listing on the Stock Exchange. The business operates a chain of supermarkets and was the subject of a management buyout five years ago.

Since the buyout, the business has grown rapidly. The managers and a private equity firm owned 80 per cent of the shares prior to the Stock Exchange listing. However, this has now been reduced to 20 per cent. The record of the business over the past five years leading up to the listing is as follows:

Required:

(a) Comment on the dividend policy of the business leading up to the Stock Exchange listing.

(b) What advice would you give to the managers of the business concerning future dividend policy?

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Year 12345 2 3 5 (most recent) Profit for the year £000 420 530 650 740 880 Dividend £000 220 140 260 110 460 No. of shares issued 000s 1,000 1,000 1,500 1,500 1,500