DIVIDEND POLICY

BY RAJEEV KUMAR
(DMO91118)
 DIVIDEND POLICY

According to “Weston and Brigham”

dividend policy determine the
division of earning between payment
to shareholder and retained earning.
 Meaning of dividend policy
 Dividend policy is a flexible meaning
word. This word is combination of
two word 1st is dividend and 2nd is
policy.
 Dividend is that portion of profit of
company which is distributed among
shareholder.
 And policy means plan of action.
 Cont.…….

 The common meaning of dividend

policy is determination of principle,
policies and procedure of dividend
distribution and formulating plans for
its distribution.
 •Factors Affecting dividend policy

1. Stability of earning
2. Liquidity of funds
3. Past dividend rates
4. Age of company
5. Composition of ownership
6. Effect of trade cycle
7. Legal restriction
8. Public opinion
 •Types of dividend policy

1. Conservative dividend policy:-

2. Liberal dividend policy:-
3. Regular dividend policy:-
4. Irregular dividend policy:-
5. Stable dividend policy:-
 1.Conservative dividend policy

 In this policy only a small part of

earnings is distributed as dividend and
major part is retained in the business
for reinvestment and growth.
 This policy is suitable for newly
established and developing companies
which need additional funds for their
expansion and growth.
 2.Liberal dividend policy;-

 This policy is just opposite to

conservative dividend policy. In this
policy, major portion of earning is
distributed among the shareholder as
dividend
 In this policy, present interest of the
shareholder is given more importance.
 This is not a healthy policy.
 3.Regular dividend policy

 Payment dividend at the usual rate is

termed as regular dividend policy.
 This policy is most liked by such
investors as retired person and
economically weaker person who
depend on day-to-day living
expenses.
 Advantage of regular dividend policy:-

1. It creates confidence amongst the

shareholder.
2. It establishes the market value of
share.
3. It provide regular income to the
shareholder
 4.Irregular dividend policy:-

 Dividend at higher rates is declared

when company earning are high and
lower dividend is paid when earning
are low.
 •Reasons of irregular dividend policy:-

1. Uncertainty of earning.
2. Heavy fixed burden of interest.
3. Unsuccessful business operation.
 5.Stable dividend policy:-

 In this policy implies lack of

variability in the stream of dividend
policy.
 It means regular payment of a
certain minimum amount as
dividend.
 Advantages of stable dividend policy:-

1. Creates confidence among the

investors
2. Desire for current income
3. Sign of normalcy
4. Stability in market price of share
5. Strengthens goodwill
 • Essential of a sound dividend policy:-

1. Stability:-
stability in dividend distribution
implies regularity in payment of
dividend.
2.Gradually Rising Dividends:-
the management of the company
should always try to make some
increase in dividend every year.
 Cont……

3.Distribution Of Cash Dividend:-

dividend should be paid in cash.
4.Moderate Start:-
In the beginning years of company
incorporation, dividend should be
declared at lower rates for some
year.
THANK YOU