The taxation policy of government affects the dividend decisions in two ways: (a) The tax rate on net profit of business affect the amount of dividend declared by the company. Higher is the tax rate lower will be the dividend. (b) The dividend policy of the firm is also influenced by the tax status of the shareholders.
What are the factors affecting dividend decisions?
The following are the some major factors which influence the dividend policy of the firm.
- Legal requirements. There is no legal compulsion on the part of a company to distribute dividend. …
- Firm’s liquidity position. …
- Repayment need. …
- Expected rate of return. …
- Stability of earning.
Which of the following affect the dividend decision of a company?
Amount of Earning :- A firm pays dividends out of its current and the past earnings. This implies that earnings play a key role in the dividend decision. A company having higher earnings will be in a position to pay a higher amount of dividend to its shareholders.
What are dividend decisions mention any four factors that affect dividend?
(i) Stability of dividend (ii) Shareholders’preference. (iii) Legal constraints (iv) Access to capital market. Explain the following as factors affecting dividend decision. (i) Stability of earnings (ii) Growth opportunities. (iii) Cash Flow position (iv) Taxation policy.
What are the four types of dividends?
A company can share a portion of its profits with four different types of dividends. Your monthly brokerage statement might show a CASH dividend, a STOCK dividend, a HYBRID dividend or a PROPERTY dividend.
What are the external factors affecting dividend policy?
1) Dividend payout rate- defined as the ratio of dividends per share and earnings per share. 3) Unregulated firms in this result are compared with earlier studies. 4) Amount of profit to be distributed among the shareholders, 5) Amount of profit to be retained in the firm.
What do you mean by dividend decision?
The financial decision relates to the disbursement of profits back to investors who supplied capital to the firm. The term dividend refers to that part of profits of a company which is distributed by it among its shareholders.
What is meant by dividend decision explain any three factors which affect the dividend decision of a company?
(i) Earning: The dividend is paid out of the present and reserved profits. Therefore, greater amount of total profit will ensure greater dividend. (ii) Stability of Earnings: A company having stable earnings is in a position to declare more dividends and vice-versa.
How do growth opportunities as a factor affect dividend decision?
(ii) Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. Thus in growth companies, payment of dividend will be less as compared to non-growth companies. … Hence cash flow position affects dividend payment.
What will affect the decision of management in paying dividends?
The corporate, institutional and legal factors that influence the dividend decision of a firm include the growth and profitability of the firm its liquidity position, the cost and availability of alternative forms of financing concerns about the managerial control of the firm, the existence of external (largely legal) …
What are the determinants of dividend?
10 Most Important Determinants of Dividend Policy | Financial Management
- (i) Type of Industry: …
- (ii) Age of Corporation: …
- (iii) Extent of share distribution: …
- (iv) Need for additional Capital: …
- (v) Business Cycles: …
- (vi) Changes in Government Policies: …
- (vii) Trends of profits: …
- (viii) Taxation policy:
What type of dividend is best?
Stock dividends are thought to be superior to cash dividends as long as they are not accompanied by a cash option. Companies that pay stock dividends are giving their shareholders the choice of keeping their profit or turning it to cash whenever they so desire; with a cash dividend, no other option is given.
What are examples of dividends?
An example of a dividend is cash paid out to shareholders out of profits. They are usually paid quarterly. For example, AT&T has been making such distributions for several years, with its 2021 third-quarter issue set at $2.08 per share.
Are dividends free money?
It is important to remember that dividends are simply the portion of a company’s earnings which management chooses to pay out to shareholders. … Finally, the payment of dividends doesn’t actually increase the value of your portfolio. They can be beneficial, but they aren’t free money.