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Divident Policy Bcom 6th Semester Notes By Simplifiedstudyofficial

                                 Divident Policy 

       Theory Notes By Simplifiedstudyofficial 


                

1.Define dividend policy?

                     Or

What is dividend policy?who takes divident decision?

                                         Or

what do you mean by good dividend policy?


Ans. Dividend Policy involves the decisions whether_

1.to distribute earnings in the form of divident anong shareholders ,or

2. to retain earnings for reinvestment in the business

3. to retain some earnings and to distribute the remaining earning .


The main objective of a company is to shareholders . The company should therefore, follow such a dividend policy which ensures the maximization of its shareholder' wealth. Thus a good dividend policy refers to that dividend policy which ensure the maximisation of shareholder's wealth .


Who take dividend decision ?

 ANS -Divide decision is a decision about the distribution of a proportion of net profits of the company in the form of dividends to the shareholders of the company. dividend decision is taken by the board of directors and is then recommended to the shareholder for their final approval at the annual general meeting of company . The shareholders cannot increase the amount of dividend as recommended by the board of directors. however , they can reduce the amount of dividend .


             



2. Explain different type of dividend Policy .

                                Or

What do you understand by stable Dividend Policy?


Ans - Type of  Dividend Policy :

(A) Conservative dividend policy :

Conservative dividend policy refer to that policy in which the company distributes a minimum possible portion of its earning among shareholders in the form of dividend .Thus, in this policy a major protion of annual earnings is retained by the company for reinvestment in the business, The payout ratio under this policy is very low .this policy is followed by those companies are benefited in the long run.                      


(B). Liberal Divident Policy : 

Liberal dividend policy is the policy in which the company seeks to distribute the maximum protion of its earnings among sharehloders in the form of dividend . Only that portion of profits is retained by the company which is legally requires to be kept in resreves . Thus, in this policy management gives more improtance to the immediate interrest of shareholder rather than their long run interest . The payout ratio under this policy is very high .This policy is followed by those conpanies which have not profitable re-investment opportunities

(C) Stable Dividend policy :

Under this policy , the dividend remain constant over a number of years even though the earning may go up or down . companies using stable dividend policy normally create adequte reserves in the time of high earnings and apply them for dividend distribution in the year when earning are low .

The stability of dividend can be in any of the follow three form :

(1) Constant divided percentage: In this policy , the divide remain constant over a number of years even though the earnings may go up or down . Companies using stable dividend policy normally create adequate reserves in the time of high earnings and apply them for dividend distribution in the years when earning are low .

The stability of dividend can be in any of the following three form :

(1) Constant Divided percentage :- In this policy a certain percentage of dividend is paid regularly . This percentage is calculated on the paid up capital . for example , a company may pay a regular dividend of 10% on its paid up capital .

(2) Constant  Divided per share :- In this policy ,a company pays regularly a certain fixed amount per share as dividend say rupees 3 per share .

(3) Constant  Divided pay-out ratio :- In this policy, a certain percentage of profit is distributed among shareholder  by way of dividend. For example , a company adopts a 75% dividend pay out ratio , it mean that out of every rupees 100 earned by it, it will distribute rupees 75 among shareholder by way of dividend . suppose ,acompany earn rupees 10 per share during the year 2006 -07 , the company will pay rupees 7.50 as dividend to the shareholders  


3. What is a stock dividend ? what are its advantages ? 

 ANS;- Stock dividend

Sometimes the liquid position of a company may not be satisfactory , In such a situation . instead of payind dividend in cash,the company may decide to distribute dividend in the form of share.This distribution of dividend in the form of shares is known as Stock Dividend.


Advantages of Stock dividend


1.It preserves the company's liquidity.

2. It is an inexpensive method of raising internal finance.

3.It broadens the capital base of the company.

4.It improves the image of the company.

5.It gives tax advantage to the shareholders.

6. Shareholders can anticipate increase in future dividends.


4. Explain the various factors which influence the dividend decision/POLICY OF A FIRM.

                                      Or

Explain various factors which determine the dividend policy of a firm.

                                      Or

Discuss the Important factors which should be kept in mind while taking dividend decisions.


Ans.      Factors affecting dividend policy :

1. Legal Restriction under the companies act :

While taking any dividend decision,the company should follow various legal provisions relating to dividend as laid down in the Companies Act,2013.


2.Availibility of Divisible Profits

Divisible profits refer to those profits which can be legally distributed in form of Dividend.If a company has large divisible profits,it may declare higher dividend.


3. Financial requirement of the company

Dividend pay-out ratio of a company,to a large extent,depend on its funds requirement for the future.If a firm has substantial investment opportunities,it may declare lower dividend to conserve resources for growth.

4. Preference of shareholders

Shareholders preference also influence the dividend policy of the firm.while taking any diividend decision,the directors should also consider the desires of the shareholders.If shareholders have interest in current income,then the firm should follow the liberal dividend payout policy.On the other hand,if they have a preference for capital gains,the firm should follow a conservative dividend policy.


5. Nature of Earnings

Nature of earnings also affects the dividend decision.If the earnings of a company are expected to remain stable over a numer of years ,thecompany may follow constant dividend policy.On the another hand,if earnings are fluctuating from year to year,the company may decide to pay high dividend in the times of high earnings or low dividend in the times of low earnings.

6.Stability of dividend

Some companies follow the policy of paying a fixed percentage of dividends every years.Hence,the company's own policy regarding the stability of dividend also affects the dividend decision.


For more depth explanation of this topic , Watch video on our Youtube Channel @Simplifiedstudyofficial

        


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