DIVIDEND POLICY

Definition : A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings, usually quarterly. Cash Dividend Payment Procedures : A firms board of directors decides whether and in what amount to pay cash dividends to corporate stockholders. It is a trade off between retained earnings on one hand and distributing cash or securities on other hand. Amount of dividend Relevant Dates :
October 20 October 22 November 22

October 10 declaration date

exdividend date

date of record

payment date

1. Declaration date 2. Record date

3. Exdividend date

4. Payment date

: a firm announced will provide dividend to stockholders. : all person whose names are recorded as stockholders on the date of record set by the directors receive a declared dividend at a specified future time. : period beginning 2 business days prior to the date of record during which a stock is sold without the right to receive the current dividend. : set by the firms directors, the actual date on which the firm mails the dividend payment to the holders of record.

Relevance of dividend Policy 1. Residual theory of dividends 2. Argument for dividend irrelevance 3. Argument for dividend relevance Factor Affecting Dividend Policy 1. 2. 3. 4. 5. 6. Legal Constraints Contractual Constraints Internal Constraints Growth Prospect Owner Considerations Market Considerations

Types of Dividend Policy 1. Constant-payout-ratio dividend policy A dividend policy based on the payment of a certain percentage of earnings to owners in each dividend period. 2. Reguler Dividend Policy A dividend policy based on the payment of a fixed dollars dividend in each period. 3. Low-regular-and-extra dividend Policy A dividend Policy based on paying a low regular dividend, supplemented by an additional (extra) dividend when earnings are higher than normal in a given period. Other Forms of Dividends Dividens can be paid in forms other than cash. 1. Stock Dividends The payment to existing owners of a dividend in the form of stock. 2. Stock Split A method commonly used to lower the market price of a firms stock by increasing the number of shares belonging to each shareholders. 3. Stock Repurchases The Repurchases by the firm of outstanding common stock in the market price; their popularity and importance is due to the fact that they either enhance shareholder value or help to discourage on unfriendly takeover.