Dividend Policy of the financial management

Dividend policy of financial management

1. DIVIDEND POLICY Made by:- Mohit sheokand

2. Dividend Policy

3. Dividend Policy Dividend refers to that net profits of a company which distributed among shareholders as a return on their investment in the company. Dividend is paid on preference as well as equity shares of company. Thus the dividend policy divide the net profits or earnings after taxes into two parts : Earnings to be distributed as dividend Earnings retained in the business

4. Kinds Of Dividends Cash Dividend Stock Dividend or Bonus Shares Scrip Dividend Bond Dividend Property Dividend Liquidating Dividend

5. Types Of Dividend Policy Stable Dividend Policy Low Regular Dividends Plus Extra Dividends Policy Dividends Fluctuating With Earnings Policy Policy Of No Dividend at Present

6. Stable Dividend Policy The term ‘stability of dividends’ refers to the consistency or lack of variability in the stream of dividend payments. It means that a certain minimum amount of dividend is paid out each year. Three Forms Of Stability Of Dividend : Constant Dividend Per Share Constant Dividend Payout Ratio Constant Dividend Per Share Plus Extra Dividend

7. Significance Of Stability Of Dividends Fulfilment of Investor’s Desire For current Income Resolution of Investor’s Uncertainty Requirements of Institutional Investor’s Raising Additional Finances Helpful In Long Term Financial Planning

8. Factors Determining Dividend Policy Financial Needs of the Firm Stability of Dividends Legal Restrictions Restrictions in Loan Agreements Liquidity Acess to Capital Market Stability Of Earnings Objective Of Maintaining Control Effect On Earning Per Share Inflation

9. Dividend Policy Theories These Theories Categories in two groups : Thories for Relevance Of Dividend Decision. (a) Water’s Model (b) Gordon’s Model. Thories for Irrelevance of Dividend Decision. (a) Modigliani and Miller Hypothesis.

10. The Walter Model Relationship Between The Following Two Factors ( a). The return on firm’s Investment or its internal rate of return (r) and (b). Its cost of capital or the required rate of return (Ke). 1. (r>Ke) rate of return is greater than cost of capital. 2. (r<Ke) rate of return is less than from cost of capital.

11. Assumptions of Walter’s Model Constant return of capital Internal financing 100% payout or retention Constant earnings per share and constant Dividend Per Share Infinite time

12. Limitations of Walter’s Model No External Financing Constant rate of return Constant equity capitalisition rate

13. Assumptions of Gordon’s Model No external financing All equity firm No taxes Prepetual Earnings Constant internal rate of return Constant cost of capital Constant retention Ratio

14. Assumptions of Modigliani and Miller Hypothesis theory Perfect capital Markets No taxes Fixed investment policy Certainly Of earnings

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