There are several factors which affect dividend policy, the most important of which are the following: (a) legal rules, (b) liquidity position, (c) the need to pay off debt, (d) restrictions in debt contract, (e) rate of expansion of assets, (f) profit rate, (g) stability of earnings, (h) access to capital markets, (i) …
What is dividend policy throw light on the factors affecting dividend policy?
The financial matters like trend of profit, existence of earned surplus, cash position, reaction of shareholders, economic policy of the nation, need for expansion, and nature of the enterprise trade cycle, age of the company, government taxation policy are determinants of dividend policy.
What are dividends What are the types of dividends and factors affecting the dividend policy?
Factors Affecting Dividend Policy
Past Dividend Rates: There should be a steady rate of return on dividends to maintain stability; therefore previous year’s allowed return is given due consideration. … Some shareholders consider dividends as a regular income, while the others seek for capital gain or value appraisal.
What are the external factors which affect the dividend policy of a company?
1) Dividend payout rate- defined as the ratio of dividends per share and earnings per share. 3) Unregulated firms in this result are compared with earlier studies. 4) Amount of profit to be distributed among the shareholders, 5) Amount of profit to be retained in the firm.
What are the types of dividend policy?
There are three types of dividend policies—a stable dividend policy, a constant dividend policy, and a residual dividend policy.
What is the importance of dividend policy?
Dividend policy is important because it outlines the amount, method, type, and frequency of dividend distributions. This is true whether the dividend policy is formally stated. Or, informally implied. One of the objectives of dividend policy is to send signals to current investors and attract new investors.
What is optimal dividend policy?
The optimal dividend policy is derived under general conditions which allow variable risk parameters and discounting. … For models with barriers for dividends the higher moments of the sum of the discounted dividend payments are derived.
What is dividend policy and explain its objectives?
Dividend policy is the policy used by a company to decide how much it will pay-out to shareholders in the form of dividends. Usually a company retains a part of its earnings and distributes the other part as dividend.
What is passive dividend policy?
Passive dividends are money one earns with little or no effort. Examples of passive dividends are rent, interests, or even winning.
What are the three theories of dividend policy?
However, they are under no obligation to repay shareholders using dividends. Stable, constant, and residual are the three types of dividend policy. Even though investors know companies are not required to pay dividends, many consider it a bellwether of that specific company’s financial health.
How is dividend policy determined?
The firm would have an optimum dividend policy which will be determined by the relationship r and k, i.e., if the return on investment exceeds cost of capital the firm should retain the earnings whereas it should distribute the earnings to shareholders in case the required rate of return/cost of capital exceeds the …
What is strict dividend policy?
A residual dividend policy means companies use earnings to pay for capital expenditures first, with dividends paid with any remaining earnings generated.