Dividend Policy

In: Business and Management

Submitted By subash
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Dividend Policy: Company’s total net income can be divided into two parts: earning to be distributed to the equity shareholders and earning to be kept in the organization. Earning that are distributed to the shareholders are known as dividend and earnings that kept in the organization are known as retained earnings. Dividend policy determines the division of earnings between payments to stockholders and reinvestment in the firm. Therefore, the decision regarding how much profit to distribute to the shareholders and how much to keep in the organization is the dividend policy. Once a company makes a profit, management must decide on what to do with those profit. Remembering the financial panic of 2008, many firms adhered to a “fortress balance sheet” mentality, with cash balances remaining near all-time highs and balance sheets less burdened by debt than before the financial crisis. Despite the health of capital markets and corporate balance sheets, the forecast for the global economy remains bleak: unemployment in developed countries remains stubbornly elevated, GDP growth estimates are muted, and local, state and sovereign governments struggle to balance fiscal solvency with social obligations. Dividend Decision is a decision made by the directors of a company. It relates to the amount and timing of any cash payments made to the company's stockholders. The decision is an important one for the firm as it may influence its capital structure and stock price. In addition, the decision may determine the amount of taxation that stockholders pay. There are three main factors that may influence a firm's dividend decision: Free-cash flow, Dividend clienteles, Information signalling. Dividend policy is concerned with deciding the part of profit to be distributed to the shareholders. Such a policy depends on various factors, which include…...

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