Patni Computer Systems Ltd. (PCSL) was incorporated in 1978 first as a private limited company. In 1995, it was converted into a public company. The original activities were computer time rental,...

Patni Computer Systems Ltd. (PCSL) was incorporated in 1978 first as a private limited company. In 1995, it was converted into a public company. The original activities were computer time rental, resale of imported computer hardware and software exports. Subsequently, it began manufacturing computer hardware. During 2000s, the company emerged as a major IT service company. As its income statement shows, its net earnings have grown fast during a past few years. From Rs 1944.1 million at the end of 2005, the net earnings recorded an increase to Rs 5427.3 million at the end of 2009 which is slightly less than threefold. But the dividend paid to the shareholders did not increase at the same rate. The dividend pay-out ratio increased in the earlier years, but was found declining during 2009.

Dividend pay-out ratio does not indicate any focus on stability. In terms of the absolute amount of dividend payment, some amount of stability is, of course, indicated. From the trend, it is also clear that the company is giving greater focus on retention of earnings than giving more care for the payment of dividend.

1. Explain the concept of stability in dividend payment based on the trend found in case of PCSL.

2. Which of the theories of the dividend payment is greatly evident from the trend of PCSL’s dividend payment?