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Dividend Bba 3 Unit-5

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29 views

Dividend Bba 3 Unit-5

Uploaded by

Akshay Das
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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WHAT IS A DIVIDEND POLICY?

The dividend policy of a company is the decision about the


distribution of dividends to its shareholders. A dividend policy is
a financial decision that involves deciding on the dividend payout
ratio, the frequency of dividends and should they pay dividends at
all or not.

In simple terms, DP determines the division of earnings between


payments to shareholders and retained earnings.
FACTORS OF DIVIDEND DECISION
 Profits
 Investment opportunities
 Availability of funds
 Industry trends in dividend payment
 Company’s dividend payment history
OBJECTIVES OF DIVIDEND POLICY
 Offer Shareholder Income
 Fund Future Projects
TYPES OF DIVIDEND POLICIES
1. Stable Dividend Policy: A stable dividend policy involves fixing a certain amount of dividend that the
shareholders periodically receive. Even if the company incurs a loss, the amount of dividend does not
change.
2. Regular Dividend Policy: In a regular dividend policy, the company fixes a certain percentage of dividend
from the company’s profits. When the profits are high, the dividend payment will automatically be high.
While the profits are low, the dividend payment will remain low. Experts usually considers this to be the
most appropriate policy for paying dividends and creating goodwill.
3. Irregular Dividend Policy: In an irregular dividend policy, the dividend payment solely depends on the
company’s decision. If the company decides to pay a dividend to the shareholders, then the shareholders get
the dividend. The decision solely depends on the company’s priorities. If the company has a new project to
fund, then it may decide to retain the profits within the company instead of distributing it.
4. No Dividend Policy: In no dividend policy, the company always retains the profits and doesn’t distribute
them to its shareholders. Usually, growth-oriented companies follow the no dividend policy. The strategy
might suit companies who aim for growth. However, it may discourage investors who are looking for
sustainable income in the long term.
FACTORS AFFECTING DIVIDEND POLICY
 Profitability: The profitability of a company is one of the major factors that
affect the dividend policy. Companies will declare dividends only if they make
profits. The profits also determine how much dividends the company shall
distribute to its shareholders.
 Dividend Payment History: A company with a good dividend payment
history will continue to maintain its dividend payments in the future. Many
investors invest in such stocks to earn regular dividends.
 Availability of Fund and Growth: Companies retain their profits to fund
their growth and expansion plans. If there are enough retained earnings,
companies tend to distribute their profits to shareholders by giving dividends.
DIVIDEND POLICY THEORIES
Residual Approach
THEORY OF
IRRELEVANCE Modigliani and Miller Approach

Gordon’s Approach
THEORY OF
RELEVANCE Walter’s Approach
WALTER’S MODEL
OPTIMAL PAYOUT
Growth Firm: r > k NIL
Normal Firm: r = k Irrelevant
Declining Firm: r < k 100%

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