Mullin PLC Dividend Policy

Publicly traded company decides on whether or not to pay dividends to its stockholders and how much in the form of dividends at the end of financial period. Private companies too decide on amount to withdraw from business or reinvest back to the business. This is the dividend decision.

Mullin plc has three available types of dividend policies that it can choose. They include constant payout ratio dividend policy, regular dividend policy and, low regular and extra dividend policy. Constant payout ratio dividend policy refers to paying a certain percentage of earnings and distributed to owner in the form of cash. In this policy, Mullin plc will set a particular percentage on the earning it receives in a financial period, for instance 40% of earning paid as dividends. Since dividends are also considered as indicators of a firm condition and stability, stock prices could suffer in this policy if the earning fall (Dhanani, Alpa 2005). A regular dividend policy refers to a policy that base on a fixed dividend each period. This policy will mean Mullin plc set a specific dividend amount for instance 5pounds per share. This policy helps in minimizing uncertainties (Yadav, Tapesh 2012). The low regular and extra dividend policy refers to policy that pays low dividends regularly and an additional dividend when the earnings are higher than normal in a given period.

Mullin plc may also opt to pay dividends in the form of stock dividends and stock repurchases. Stock dividend refers to payment of existing stockholders in the form of stock. Stock repurchases refers to firm buying back its own shares. Mullins plc can achieve this through the open market, tender offer and purchasing to the existing stockholders. (Le Fur, Yann, Maurizio Dallochio, and Antonio Salvi, 2005)

Mullin plc will have to establish policies that are consistent with its goals. A number of factors influence the dividend policy of a firm. They include “legal constraints, contractual constraints, internal constraints, the forms growth prospects, the owner considerations, and market considerations” (Baker, H. Kent, Gary Powell, 2009 p 469). Legal constraints refer to restrictions on a firm from paying dividends over a set legal limit. In addition, if Mullins plc has overdue liabilities or becomes insolvent, it is restricted from paying dividends. Contractual constraints refer to restrictions made by loan agreements. Internal constraints refer to the abilities of the firm to pay dividends that could result from amount it holds in cash.