What is meant by dividend policy decision ? Explain the following four factors which affect the dividend decision of a company.
(i) Legal constraints
(ii) Stability of earnings
(iii) Access to capital markets
(iv) Taxation policy
What is meant by dividend policy decision ? Explain the following four factors which affect the dividend decision of a company.
(i) Legal constraints
(ii) Stability of earnings
(iii) Access to capital markets
(iv) Taxation policy
Dividend policy decisions are concerned with decisions for deciding the amount of profits a business would like to distribute among their owners and shareholders. These decisions also involve determining how much amount can be retained within the business for further operations. Factors affecting dividend decision policies are
(i) Legal constraints: The Companies Act, 1956 has legal provisions under which a certain percentage of profits should be transferred into reserves if the dividend to be paid is more than 10 percent.
(ii) Stability of earnings: If the business is able to consistently reduce short-term liabilities that it will be earning stable earnings continuously to declare more dividends.
(iii) Access to capital markets: A business has easy access to capital markets for raising capital if a higher dividend rate is declared
(iv) Taxation policy: Tax policy is directly proportionate to a declaration of dividends. As it directly influences the amount of profits available with the company to declare dividends.
Dividend policy decisions are concerned with decisions for deciding the amount of profits a business would like to distribute among their owners and shareholders. These decisions also involve determining how much amount can be retained within the business for further operations. Factors affecting dividend decision policies are
(i) Legal constraints: The Companies Act, 1956 has legal provisions under which a certain percentage of profits should be transferred into reserves if the dividend to be paid is more than 10 percent.
(ii) Stability of earnings: If the business is able to consistently reduce short-term liabilities that it will be earning stable earnings continuously to declare more dividends.
(iii) Access to capital markets: A business has easy access to capital markets for raising capital if a higher dividend rate is declared
(iv) Taxation policy: Tax policy is directly proportionate to a declaration of dividends. As it directly influences the amount of profits available with the company to declare dividends.
