Contents

  1. Factors Affecting the Dividend Policy
  2. Essentials of Dividend Policy
  3. Importance of Dividend Policy
  4. Example of a Dividend Policy
  5. Conclusion

Factors Affecting the Dividend Policy

The following are the factors:

  • It gets tormented by the sort of business to which it belongs.
  • In the industries wherever the earnings are stable, consistent dividend policy will be applied, and also in the industries within which earnings don’t seem to be stable, consistent dividend policy can’t be applied. Therefore the structure of the economic earnings is an extremely vital issue to decide on the pattern of dividend policy.
  • The possession structure of the corporate is additionally vital to the issue of dividend policy.
  • Where there’s a higher share of promoters holding within the company there’s continuously a low dividend pay-out is found. As a result of the upper payout of dividends could cause a decline within the price of the stock of the corporate.
  • The age of the corporate is additionally one of the crucial factors that affect the dividend policy of the corporate. Freshly fashioned firms essentially don’t have high dividend pay-out quantitative relation within the starting of formation as a result of they maintained their earnings for any growth of their business and new acquisitions within the market.
  • In the corporate once there are an outsized variety of shareholders, it’ll be troublesome for the corporate to follow the stable or mounted pattern of dividend policy per the pattern of earnings within the later years, and the corporate will then attempt to distribute the dividend per the bound division pattern.
  • The leverage or the debts whether or not short term or future conjointly affect the dividend pay-out. typically the extremely leveraged corporate has got to pay several payments within the variety of interest within which case there remains very less quantity missed for the distribution of dividends.

Essentials of Dividend Policy

There are 3 necessities permanently dividend policy:

  • Distribution of Lower Dividend within the Initial Years of the Corporation of the Company: within the initial year of the corporation the corporate typically makes lower profits and earnings. That the dividend distributed within the initial stages of the formation of a corporation is small.
  • Increase within the Distribution of Dividend: because the company grows, its profits and earnings conjointly will increase and it ought to increase David and distribution to realize the boldness of shareholders.
  • Stability: once a company attains a stable position within the market; it ought to follow the stable pattern of dividend distribution to realize the boldness of existing shareholders

Importance of Dividend Policy

  • It helps in capital budgeting activities of the corporate and hands and also the capital structure of the corporate gets improved.
  • The shareholders of the corporate get an inspiration of the receipt of the dividend within the future and therefore the corporate gets the trust of investment by them.
  • Better dividend policy shows the nice money position of the corporate and therefore attracts investors who will leverage an honest add to that.
  • It helps in smart designing of future comes. The corporate will have an inspiration for its liquidity and profits.
  • Good dividend policy attracts a lot of investors as a result that the value of the shares gets exaggerated.
  • The smart policy creates goodwill for the corporate and it will raise the funds in the future simply due to its goodwill

Example of a Dividend Policy

Kinder Morgan (KMI) aghast the investment world once in 2015 they cut their dividend pay-out by seventy-fifth, a move that saw their share worth tank. However, several investors found the corporate on solid footing and created sound money selections for her future. During this case, a corporation cutting their dividend truly worked in their favor, and 6 months when the cut, Kinder Morgan saw its share worth rise nearly twenty-fifth. In early 2019, the corporate once more raised its dividend payout by twenty-fifth, a move that helped to arouse capitalist confidence within the energy company.

Conclusion

Dividends and Dividend policy are crucial factors for the corporate to realize the trust of shareholders and therefore to extend the investments within the company. There are different kinds of dividend policies that embody fixed/regular, stable, irregular, and no dividend policies. The policy that the corporate selects should align with the goal of the corporate with the motive of increasing the price for the shareholders of the corporate.

Uncategorized