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The term dividend refers to that part
of profits of a company which is
distributed by the company among
its shareholders.
It is the reward of the shareholders for
investments made by them in the
shares of the company.
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It refers to the policy that the
management formulates in regard to
earnings for distribution as dividends
among shareholders. it determines
the division of earnings between
payments to shareholders and
retained earnings.
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Õ The firm has to balance between the
growth of the company and the
distribution to the shareholders
Õ It has a critical influence on the
value of the firm
Õ It has to also to strike a balance
between the long term financing
decision( company distributing
dividend in the absence of any
investment opportunity) and the
wealth maximisation
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Õ The market price gets affected if
dividends paid are less.
Õ Retained earnings helps the firm to
concentrate on the growth,
expansion and modernisation of the
firm
Õ To sum up, it to a large extent
affects the financial structure, flow
of funds, corporate liquidity, stock
prices, growth of the company and
investor¶s satisfaction.
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Õ mtability of earnings Õ Growth needs of the
Õ Financing policy of company
the firm Õ Profit rates
Õ Liquidity of funds Õ Legal requirements
Õ Dividend policy of Õ Policy of control
competitive firms Õ Corporate taxation
Õ Past dividend rates policy
Õ Debt obligation Õ Tax position of
Õ Ability to borrow shareholders
Õ Effect of trade policy
Õ Attitude of the
investor group
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It is the desirable policy of the
management to distribute the
shareholders a certain percentage of
earnings as a reward for their
investment. It may not always relate to
the earnings of the company.
Dividend practices:
Õ Constant dividend per share

Õ Constant percentage of net earnings

Õ mmall constant dividend per share plus

extra earnings
Õ Dividend as a fixed percentage of market
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Õ Confidence among shareholders
Õ Investors desire for current income
Õ Institutional investor¶s requirement
Õ mtability in market prices of shares
Õ Raising additional finances
Õ mpreading of ownership of outstanding
shares
Õ Reduces the chances of loss of control
Õ Market for debentures and preference
shares.
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An unusual type of dividend involving the
distribution of promissory notes that call for some type of
payment at a future date.
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A type of liability dividend paid in the
dividend payer's bonds .
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A stockholder dividend paid in a

form other than cash, scrip, or the firm's own stock.
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A dividend paid in cash to a company's
shareholders, normally out of the its current earnings or
shareholders,
accumulated profits
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A dividend
payment made in the form of additional shares, rather than a
cash payout.
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Dividend which the shareholder

can choose to take as either cash or stock
stock..
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Õ Conservation of cash
Õ Lower rate of dividend
Õ Financing expansion programmes
Õ Transferring the formal ownership
of surplus and reserves to the
shareholders
Õ Enhanced prestige
Õ Widening share market
Õ True presentation of earning
capacity
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Õ To the company Õ To the shareholders
1. Maintenance of 1. Increase in their
liquidity position equity
2. matisfaction of 2. Marketability of
shareholders shares increases
3. Economical issue of 3. Increase in income
capitalisation 4. Increase demand for
4. Remedy for under shares
capitalisation
5. Enhance prestige
6. Widening the share
for market
7. Finance for expansion
programmes
8. Conservation of
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Õ To the company Õ To the shareholder
1. Increase in the 1. It lowers the market
capitalisation of the value
company 2. mhareholders prefers
2. It results in more cash dividend
liability 3. EPm also falls
3. Denies other
investors to
shareholders
4. Management control
not diluted it may
lead to fraud