Dividend Decision
DIVIDEND DECISION
The dividend decision is one of the 3 basic decisions which a financial manager maybe required to take, the other two being the investment decisions and the financing decisions. In each period any earnings that remain after satisfying obligations to the creditors, the government and the preference sh.hol can either be retained or paid out as dividends or bifurcated between retained earnings and dividends. The retained earnings can be invested in assets which will help the firm increase or at least maintain its present rate of growth. The dividend decision requires a financial manager to decide about the distribution of profits as dividends. Profits may be distributed as cash dividends to sh.hol or in the form of stock dividends ( also known as bonus sh.) .
DIVIDEND POLICY AND VALUE OF THE FIRM
Dividend policy is basically concerned with deciding whether to pay dividend in cash now or to pay increased dividends at a later stage or distribution of profits in the form of bonus shares. The current dividend provides liquidity to the investors but the bonus share will bring capital gains to the sh.hol. The investors preferences between current cash dividend and future capital gain have been viewed differently. The basic question to be resolved while framing the dividend policy : ‘Given the firm’s investments and financing decisions, what is the effect of firm’s dividend policies on the share prices?’. Does a high dividend payment decrease, increase or does not affect at all the share prices. Various models have been proposed to evaluate the dividend policy decision in relation to the value of the firm
RELEVANCE OF DIVIDEND POLICY
1. 2.
Generally , the firms pay dividends and view such dividend payments positively. The investors also expect and like to receive dividend income on their investments. The firms not paying dividends maybe adversely rated by the investors thereby affecting the market value of share.
The dividend decision is one of the 3 basic decisions which a financial manager maybe required to take, the other two being the investment decisions and the financing decisions. In each period any earnings that remain after satisfying obligations to the creditors, the government and the preference sh.hol can either be retained or paid out as dividends or bifurcated between retained earnings and dividends. The retained earnings can be invested in assets which will help the firm increase or at least maintain its present rate of growth. The dividend decision requires a financial manager to decide about the distribution of profits as dividends. Profits may be distributed as cash dividends to sh.hol or in the form of stock dividends ( also known as bonus sh.) .
DIVIDEND POLICY AND VALUE OF THE FIRM
Dividend policy is basically concerned with deciding whether to pay dividend in cash now or to pay increased dividends at a later stage or distribution of profits in the form of bonus shares. The current dividend provides liquidity to the investors but the bonus share will bring capital gains to the sh.hol. The investors preferences between current cash dividend and future capital gain have been viewed differently. The basic question to be resolved while framing the dividend policy : ‘Given the firm’s investments and financing decisions, what is the effect of firm’s dividend policies on the share prices?’. Does a high dividend payment decrease, increase or does not affect at all the share prices. Various models have been proposed to evaluate the dividend policy decision in relation to the value of the firm
RELEVANCE OF DIVIDEND POLICY
1. 2.
Generally , the firms pay dividends and view such dividend payments positively. The investors also expect and like to receive dividend income on their investments. The firms not paying dividends maybe adversely rated by the investors thereby affecting the market value of share.