DIVIDEND ITS TYPES AND FACTORS THAT EFFECT DIVIDEND DECISION

GROUP MEMBERS SAKSHI GUPTA (45) SAPNA (46) SHARAD GUPTA (47) SHEFALI SHARMA (48) SHILPA GUPTA (49) SHIPALI GUPTA (50)

INTRODUCTION
Dividend is a portion of the company's earnings to be distributed to its shareholders, based board of directors' decision. Dividends are quoted as Dividend Per Share (DPS) or dividend yield. Most companies having stable and secure growth offer dividends when their share prices become stagnant. However several companies do not offer dividends as all profits are reinvested to ensure faster, better-than-average growth. The board of directors decides the percentage of the profit to be distributed as dividends. Dividends are issued quarterly or annually, and companies are not under any obligation to pay dividends every quarter and the company may stop paying dividends at any point of time. But if the company stops paying dividends its market value is affected, hence dividends are paid regularly and even if there is no increase in the dividend at least they will get dividends on a fairly regular basis.

We can understand the meaning and concept of dividend out of the definition given by the Income Tax Act, 1961 as follows Any distribution of accumulated profits, whether capitalised or not if such distribution entails a release of the asset or part thereof. Accumulated profits include amount of development rebate but not depreciation reserves. They refer to book profits and not to accumulated income as shares, issued by capitalising profits, do not involve any release of assets and do not constitute dividend.

Any distribution of debentures deposit certificates and bonus shares to the extent of accumulated profits whether capitalised or not. Any distribution upon liquidation to the extent of accumulated profit before liquidation, whether capitalised or not .

Contd..
Any distribution of or reduction in capital to the extent of accumulated profit whether capitalised or not.

Any payment of a sum, whether part of the assets or other wise, by way of advance or loan to an individual or for the individual benefit of a shareholder who has a substantial interest in the company.

Distribution of rights to acquire shares in another company, the dividend being valued at the market value of the shares. Refund of capital by way of reduction in share capital to the extent of accumulated profits in the form of capitalised reserves.

DEFINITIONS
According to the Supreme Court of India, Dividend is the portion of profits of the company which is allocated to the holders of shares in the company. Dividends are the distribution of a company's gains over a fixed period of time to shareholders. This disbursement of capital is done so under the authority of the board of directors. Dividends are issued on a per share basis and is called a per share dividend.

There are three important dividend-related dates Declaration date, Date of record and Payment date. Declaration date -On the declaration date the company opens a book of liabilities in terms of the cash dividends it owes to the shareholders, and on this date both the other dates are decided and declared. Date of record- It indicates the dividends are only paid to shareholders who are the owners of the share on or before the date of record. Payment date- is the date the dividend is paid out.

 CASH DIVIDEND :
Paid out of a company's profits to the owners of the business (i.e., the shareholders).. Types: Regular cash dividend cash payments made directly to stockholders, usually each quarter Extra Cash Dividend indication that the extra amount may not be repeated in the future Special cash dividend similar to extra dividend, but definitely wont be repeated

 STOCK DIVIDEND: proportionate distribution of additional or bonus shares of company's stock to owners of the common stock. Also referred to as stock split. Opted for a number of reasons - inadequate cash on hand. - desire to lower the price of the stock on a per-share basis. - increase liquidity.

 PROPERTY DIVIDEND:
alternative to cash or stock dividends. company may issue a non-monetary dividend to investors, rather than making a cash or stock payment. either include shares of a subsidiary company or physical assets such as inventories that the company holds. can be distributed if the parent company does not wish to dilute its current share position or if it does not have enough cash on hand to distribute healthy payments.

 SCRIP DIVIDEND :

issued in case a company does not have sufficient funds to issue dividends in the near future. It may take the form of (1) a promissory note discountable before its due date, also called liability dividend, or (2) common stock (ordinary shares) reflecting capitalization of a part of reserves (retained earnings), also called capitalization issue.

 LIQUIDATING DIVIDEND:
type of payment made by a corporation to its shareholders during its partial or full liquidation. made from the company's capital base, and as a return of capital- this distinguishes a liquidating dividend from regular dividends, which are issued from the company's operating profits or retained earnings. Also called liquidating distribution. liquidating dividends are considered a return of shareholders' investments, rather than profit on them.

TYPES OF DIVIDEND
(1) Regular Dividend. By dividend we mean regular dividend paid annually, proposed by the board of directors and approved by the shareholders in general meeting. It is also known as final dividend because it is usually paid after the finalization of accounts. Sometimes, it is paid per share. (2) Interim Dividend. If Articles so permit, the directors may decide to pay dividend at any time between the two Annual General Meeting before finalizing the accounts. It is generally declared and paid when company has earned heavy profits or abnormal profits during the year and directors which to pay the profits to shareholders. It is, an extra dividend paid during the year requiring no need of approval of the Annual General Meeting. It is paid in cash.

DIVIDEND PAYMENT-RETENTION DECISION

A firms dividend decision include two basic components

Dividend Payout Ratio

The amount of dividend relative to the companys net income or earnings per share.

Stability of Dividend
Dividend stability is as important to investor as the amount of dividend received.

INVESTMENT DECISION DEBT-EQUITY MIX

Larger dividend Small Dividend

Low Profit Retention

High Profit Retention

Heavy external financing

Negligible External Financing

FACTORS EFFECTING DIVIDEND PAYMENT

Stability of dividend Nature of industry

Age of the company

Future financial requirement

Liquid resources
Requirement of institutional investors

Contd
Trade Cycles Past Dividend Rate Government policies Taxation Policies

Legal requirements

Contd
Ability to borrow Policy to control Repayment of loans Time for payment of dividend

Regularity and stability in dividend

payment

REFRENCES
FINANCIAL MANAGEMENT : M.Y.KHAN FINANCIAL MANAGEMENT : I.M.PANDEY FINANCIAL MANAGEMENT : Principles and Applications http://220.227.161.86/19347sm_sfm_finalne w_cp4.pdf