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Dividend policy theories
Dividend policy and review of theory
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The financial manager must take careful decisions on how the profit should be distributed among shareholders. It is very important and crucial part of the business concern, because these decisions are directly related with the value of the business concern and shareholder’s wealth. Like financing decision and investment decision, dividend decision is also a major part of the financial manager.
Meaning of Dividend
Dividend refers to the business concerns net profits distributed among the shareholders. It may also be termed as the part of the profit of a business concern, which is distributed among its shareholders. This distribution is made out of the profits remained after deducting all expenses, provision for taxation and transferring a reasonable amount to reserves. As such, dividend is part of net profit which is distributed in cash by the company to their shareholders after exclusion of the retained profit.
The amount to be paid as dividend is set aside by a valid act of the company for distribution among their shareholders on record at a fixed date, in proportion to their holdings to be paid on demand or at a fixed time. Thus dividend cannot be declared by a company unless there are sufficient profits in the company, recommendation of the board of directors, an acceptance of shareholders in the annual general meeting.
According toICAI, “dividend is a distribution to shareholders out of profits or reserves available for this purpose.”
Dividend decisions and dividend policy
Dividend decision is the determinants of the percentage of earnings to be paid by the company in cash to their shareholders as dividend and the percentage of earnings to be retained by it for financing its long-term growth. It means developing a dividend ...
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... declare lower dividend so that the company can meet its financial requirements from its retained earnings without issuing new shares to the public.
B. External factors:
1) Economic Condition: The economic and business conditions as they prevail at a particular time may influence the firm’s decision to distribute or retain the profit. For example, in case of uncertain economic or business condition, the management may be motivated to retain a major portion of earnings with it to meet out the possibilities of the situation. Again, in case of times of depression when the liquidity position is likely to worsen, the management will like to retain the whole or a part of the earnings to maintain liquidity position.
2) Firm’s access to capital market: A company can pay dividend, despite of its weak liquidity position, provided it can sell its debentures or shares in the
The quarterly dividend proposed is 698,000 euro, an amount equal to 25% of the projected 2001 dividends.
We defined several criteria to determine our choice – return, risks and other quantitative and qualitative factors. Targeting a debt ratio of 40% will maximize the firm’s value. A higher earning’s per share and dividends per share will lead to a higher stock price in the future. Due to leveraging, return on equity is higher because debt is the major source of financing capital expenditures. To maintain the 40% debt ratio, no equity issues will be declared until 1985. DuPont will be financing the needed funds by debt. For 1986 onwards, minimum equity funds will be issued. It will be timed to take advantage of favorable market condition. The rest of the financing required will be acquired by issuing debt.
Dividend policy is distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.
Income from dividends. Dividends that are distributed by many companies give the opportunity to stock investors to maximize their profit
Every action or proposal needs to balance equity and efficiency needs in order to deliver optimal dividends to its targeted audience. Given the fact that resources are relatively scarce compared to the innumerable needs, businessmen, economists, administrators among other leaders reckon that every proposals needs the equity-efficiency balance in order for set goals and objectives to be achieved. This paper seeks to describe the role of equity and efficiency trade off in proposals.
Another terminology is Preferred stock, which varies in comparison to common stock investors are paid dividends consistently.
...hese events happen or minimize the negative impact when they happened. This will stabilize the distributable profit.
Primarily, financial managers look at the market price in maximizing the value of the firm. The market value is the present value of the net cash flow divided buy the risk. Investors consider the firm’s future and present earnings, disadvantages or risks and other factors that will influence a firm prior to deciding to create an investment decision and the market price of the stock that will reflect all the information considering these factors (Arain, 2011).
Introduction Dividends are the distribution of profits in the company. It depends on the type of dividend policy that is being made by companies. Dividend policy will affect the behaviours and attitudes of investors towards the company. Many economists and financial experts have constructed different theories to interpret the effects of a dividend policy on the society. But these theories are contestable since they are not tested in the real world.
Economic conditions affect how easy or how difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand (Thompson, 2002). If demand is buyout, for example, and the cost of capital is low, it will be attractive for firms to invest and grow with expectations of being profitable. In opposite circumstances firms might find that profitability throughout the industry is low.
If they company thinks that the earning will fall, stocks will decrease; deterring from investors losing money these types of
The basic earnings per ordinary share in 2016 is RM19.14 and RM14.30 in 2015. This shows that the ordinary share had been increased RM4.84 compare to 2016 based on 2015. In the other hand, this company had declared a first interim single-tier dividend of 10 sen per ordinary share amounting to RM22.88 million in respect of the financial year ended 31 December 2016. They sold their ordinary shares of RM400,000,000 units of RM0.50 per each in 2016 and RM200,000,000 units of RM0.50 per each in 2015 to their shareholders. It is increased from 2015 to 2016 with 200,000,000 units. The other investments that available for sale is RM1000 same as in 2015 and 2016.
Most of preference share issued by company are cumulative preference share, which means that all the arrear of dividend must be paid to preference share holder before paying any dividend to equity shareholders. This is company liabilities to pay arrear of dividend which increase financial burden of company.
The Role of the Financial Manager This paper will discuss the role of the financial manager and how that particular role, in the area of corporate expertise, differs from that of the shareholder and of the employee. The discussion the paper provides will help determine how the financial manager maximizes shareholder value in today's financial market. Lastly, the viewpoint of the financial manager will be compared to that of the shareholder and employee. What is a Financial Manager?