A REPORT ON

The Dividend Policy

For requirements of completion of Business Finance Presentation of in partial fulfilment of
the requirements for the award of the degree

MASTER OF COMMERCE

SEMESTER – III

(2020 - 2021)

BY

Prashant Yadav Lamture Div- A. Roll No. 256

UNDER THE GUIDANCE OF

Prof. Dr. J. R. Lanjekar

DEPARTMENT OF COMMERCE

BRIHAN MAHARASHATRA COLLEGE OF COMMERCE

(AUTONOMOUS) PUNE-411004
 ACKNOWLEDGEMENT

Every project is successful due to sincere efforts of a number of people. I take this opportunity
to thank the following individuals for their continued support towards the completion of this
report.
I wish to express my sincere gratitude to Dr. Jagdeesh Lanjekar for his help in choosing the
subject, gathering related information, arranging the same in proper order and his valuable
insights on the subject which helped in enhancing the quality of this report.
I also thankful to parents and friends for their direct and indirect support and motivation
throughout the completion.

Student Name: Prashant Y. Lamture

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 INDEX

SR. NO. TITLE PAGE NO.

Acknowledgement -

1 INTRODUCTION 4

2 BACKGROUND OF DIVIDEND POLICY 5

3 TYPES OF DIVIDEND POLICY 6

4 STEPS OF DIVIDEND POLICY 7

5 CONCLUSION 8

6 REFERENCES 9

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 INTRODUCTION:

The concept of “Dividend Policy” implies that companies through their Board of Directors
evolve a defined pattern of dividend payments which has a bearing on further action.
In other words, the dividend policy of a firm refers to the views and practices of the
management with regard to distribution of earnings to the shareholders in the form of
dividends.

Dividends are paid out of profits. These could either be profits of the current year or the
accumulated profits of the past. Dividends are paid quarterly, half yearly or annually. When
paid quarterly or half yearly they are referred to as Interim Dividend. Dividend is expressed as
a percentage of Face Value and is referred to as dividend rate.

When the dividend amount is expressed as a percentage of market price, it is called dividend
yield, while expressed as a percentage of earnings is known as Dividend Payout. Hence,
Dividend Yield is the ratio of dividend per share to market price per share and dividend payout
is the ratio of dividend per share to earnings per share.

Dividend policy determines the division of earnings between payment to shareholders and
retained earnings.

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 BACKGROUND OF DIVIDEND POLICY:

Under the Companies Act, 2013, section 123 our Company can pay dividends upon a
recommendation by our Board of Directors and approval by a majority of the shareholders at
the General Meeting. The shareholders of our Company have the right to decrease, not to
increase the amount of dividend recommended by the Board of Directors. The dividends may
be paid out of profits of our Company in the year in which the dividend is declared or out of
the undistributed profits or reserves of previous fiscal years or out of both. The Articles of
Association of our Company also gives the discretion to our Board of Directors to declare and
pay interim dividends.

There are no dividends declared by our Company since incorporation.

Our Company does not have any formal dividend policy for the Equity Shares.
The declaration and payment of dividend will be recommended by our Board of Directors and
approved by the shareholders of our Company at their discretion and will depend on a number
of factors, including the results of operations, earnings, capital requirements and surplus,
general financial conditions, applicable Indian legal restrictions and other factors considered
relevant by our Board of Directors.

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 TYPES OF DIVIDEND POLICIES:

1. REGULAR DIVIDEND POLICY:

Payment of dividend at usual rate is termed as

Regular Stable
Dividend Dividend regular dividend. The investor such as retired
Policy Policy persons, windows, other economically weaker
persons prefer to get regular dividend. The
regular dividend can be maintained only by the
company should establish the regular dividend at
lower rate as compared to average earnings of the
Irregular
No Dividend company.
Dividend
Policy
Policy
2. STABLE DIVIDEND POLICY:

The stability of dividends means consistency in

Table – 1.1 the stream of dividend payments.

It means payment of certain minimum amount of dividend regularly. A stable dividend policy
may be established in any of the following three forms:

(1) Constant Dividend Per share: Some companies follow a policy of paying fixed dividend
per share irrespective of the level of earning year after year. Such firm creates reserves i.e.
dividend equalization reserves to enable them to pay the fixed dividend even in the year when
the earnings are not sufficient or when there are losses.

(2) Constant Pay Out Ratio: It means payment of fixed percentage of net earnings as dividend
every year. The amount of dividend in such policy fluctuates I direct proportion to the earnings
of the company. The policy of constant payout is preferred by the firm because it is related to
their ability to pay dividends.

(3) Stable Rupee Dividend Plus Extra Dividend: Some companies follow a policy of paying
constant low dividend per share plus extra dividend in the years of high profits such policy is
more suitable to the firm having fluctuating earnings from year to year.

3. IRREGULAR DIVIDEND POLICY:

This policy is followed when there is uncertainty of earnings, unsuccessful business operations,
lack of liquid resources, fear of adverse affects of regular dividend on the financial standing of
the company.

4. NO DIVIDEND POLICY:
A company may follow a policy of paying no dividends presently because of its unfavorable
working capital position or on account of requirements of funds for future expansions and
growth.

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 STEPS OF DIVIDEND POLICY:

1. DETERMINATION OF NET
PROFIT AMOUNT:
DETERMINATION OF
NET PROFIT AMOUNT

To determine the amount of expected and

actual net profits for the period. If the
CALCULATION OF
DECISION TO PAY
DIVIDEND
DIVIDENDS AMOUNT
PER SHARE AND PER
profit was not shared in earlier periods, it
SHAREHOLDERS
is necessary to take into account of
accumulated undivided profit, i.e. the sum
of net profit of the current period and prior
periods.

SCHEDULING OF
DIVIDENDS PAYMENT
DIVIDENDS PAYMENT 2. DECISION TO PAY DIVIDEND:

Table – 1.2 To make recommendations to the

shareholders (owners) about the
possibility of profits distribution and payment of dividends. Payment of dividends may not be
appropriate in cases when the company plans to increase assets by net profit to increase
profitability in the future. Also unshared profit may be used for covering of uncovered losses
of previous periods or for the formation of various reserves, that will be done dividend
reinvestment.

3. CALCULATION OF DIVIDENDS AMOUNT PER SHARE AND PER

SHAREHOLDERS:

To calculate the amount of dividends per share (dividend rates) in the case of the decision to
pay dividends. Manager must calculate the amount of dividends to each shareholder, depending
on its share in the capital structure. The amount of dividends after its definition and calculation
is considered as company accounts payables to its owners.

4. SCHEDULING OF DIVIDENDS PAYMENT:

To plan the dividend payments schedule and dividends calendar (dividends dates). The
financial manager should anticipate a sufficient amount of funds for payment of dividends on
a certain date. When are dividends paid? Dividends are paid mostly after the reporting year or
other period.

5. DIVIDENDS PAYMENT:
Payment of shareholder dividends is the last phase of the company economic cycle, because it
carried out after all other major phases. Dividends are the positive factor for the shareholders,
but their payment reduces the company’s assets. That is why the dividend policy of the
company should be clearly weighed.

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 CONCLUSION:

1. Dividend Policy Provides Information To Investors:

One of the objectives of dividend policy is to send signals to current investors and attract new
investors. Sound dividend policy tells an investor what they can expect by investing in a
company’s shares of stock. Also, every time a dividend is declared, it shows management’s
confidence in the prospects for the business.

2. Dividend Policy Encourages Management Discipline:

Having a dividend policy that requires payment of a regular dividend sets a level of discipline
that management must follow with the use of cash. They know that all cash is not available
for reinvestment in the business or acquisitions. So they must choose carefully when they
allocate cash.

3. Dividend Policy Influences Stock Price And Value:

Dividend policy influences the value of a company’s stock. Some stock valuation methods are
entirely based on the present and projected dividends paid by the company. A falling stock
price means a rising dividend yield. All else being equal a rising dividend yield attracts
investors and provides underlying support for the stock price.

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 REFERENCE:
1. https://www.businessmanagementideas.com/financial-management/dividends/dividend-
policy-of-a-company-financial-management/15037

2. https://www.icsi.edu/media/portals/0/DIVIDEND.pdf

3. https://www.slideshare.net/rohanjagtap007/types-of-dividend-policy

4. https://finbenefit.com/what-are-dividends.html

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