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    UNIT - 5 Dividend Decision

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    Shruthi Rajanna
    This document discusses dividend decisions and policies. It defines dividends as profits distributed to shareholders and dividend policy as how much earnings are paid out versus retained. There are legal rules around dividend declaration rates and utilizing reserves. Key determinants of dividend policy include a company's earnings, age, liquidity, shareholders' preferences, and competitors' policies. Common dividend policies are regular, stable, irregular, and no dividend. Dividends can be paid via cash, stock, property, or bonds.

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    UNIT - 5 Dividend Decision

    Uploaded by

    Shruthi Rajanna
    32 views8 pages
    This document discusses dividend decisions and policies. It defines dividends as profits distributed to shareholders and dividend policy as how much earnings are paid out versus retained. There are legal rules around dividend declaration rates and utilizing reserves. Key determinants of dividend policy include a company's earnings, age, liquidity, shareholders' preferences, and competitors' policies. Common dividend policies are regular, stable, irregular, and no dividend. Dividends can be paid via cash, stock, property, or bonds.

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    UNIT -5 dividend decision

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    This document discusses dividend decisions and policies. It defines dividends as profits distributed to shareholders and dividend policy as how much earnings are paid out versus retained. There are legal rules around dividend declaration rates and utilizing reserves. Key determinants of dividend policy include a company's earnings, age, liquidity, shareholders' preferences, and competitors' policies. Common dividend policies are regular, stable, irregular, and no dividend. Dividends can be paid via cash, stock, property, or bonds.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    32 views8 pages

    UNIT - 5 Dividend Decision

    Uploaded by

    Shruthi Rajanna
    This document discusses dividend decisions and policies. It defines dividends as profits distributed to shareholders and dividend policy as how much earnings are paid out versus retained. There are legal rules around dividend declaration rates and utilizing reserves. Key determinants of dividend policy include a company's earnings, age, liquidity, shareholders' preferences, and competitors' policies. Common dividend policies are regular, stable, irregular, and no dividend. Dividends can be paid via cash, stock, property, or bonds.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    UNIT -5

    DIVIDEND DECISIONS
    Meaning of Dividend
    The term dividend refers to that part of profits of a company which is distributed by the
    company among its shareholders. It is the reward to the shareholders for investments
    made by them in the shares of the company.

    Meaning of dividend policy


    Dividend policy refers to deciding the portion of earnings is pegged as dividend to
    ordinary shareholders and the portion that is ploughed back in the firm for investment
    purpose.
    Legal rules regarding declaration of dividend

    1.The rate of dividend declared shall not exceed the average of the rates at which
    dividend was declared by it in the three years immediately preceding that year.
    2.The total amount to be drawn from accumulated profits shall not exceed one tenth
    of the sum of its paid up share capital and free reserves as appearing in the latest
    audited financial statement.
    3.The amount so drawn shall be first utilised to set of the losses incurred in the
    financial year in which dividend is declared before any dividend in respect of
    equity shares declared.
    4.The balance of reserves after such withdrawal shall not fall below 15% of its paid
    up share capital as appearing in the latest audited financial statement.
    Determinants of dividend policy
    a. Nature of earnings
    b. Age of company
    c. Liquidity position of company
    d. Equity shareholders preference for current income
    e. Legal restrictions
    f. Requirements of institutional investors
    g. Contractual requirements
    h. Financial needs of the company
    i. Access to the capital market
    j. Control objective
    k. Dividend policy of competitors
    l. Past dividend rates of the company
    Types of dividend policy

    1. Regular dividend policy


    2. Stable dividend policy
    • Constant dividend per share
    • Constant payout ratio
    • Stable rupee dividend plus extra dividend

    3. Irregular dividend policy


    4. No dividend policy
    Forms of dividend

    a. Cash dividend
    b. Scrip or bond dividend
    c. Property dividend
    d. Stock dividend or bonus shares

    Advantages of stock dividend or bonus issue


    1.Advantages to the company
    • Maintenance of liquid position
    • Only way to pay dividends under financial difficulty
    • Attractive share price
    • Availability of funds for expansion program

    2. Advantages to ordinary shareholders


    • Tax savings
    • Psychological value
    Disadvantages of stock dividend or bonus issue

    1. Disadvantages for the company


    • Payment of dividend in the form of stock dividend is costly
    • It may prevent new investors from becoming the shareholders of the firm.
    • It may lead to misuse of Management power, since there is no dilution of control.

    2. Disadvantages for shareholders


    • Disappointment of shareholders who prefer dividend in the form of cash.
    • Shareholders wealth remains unaffected.
    • It lowers the market value of existing shares.
    Sources of bonus issue

    • Securities premium account


    • Capital redemption reserve
    • Current year profit
    • Any type of revenue reserve
    • Investment allowance reserve
    • Debenture redemption reserve
    • Free reserves

    Meaning of right issue


    It is an invitation to existing shareholders to purchase additional new shares in the
    company

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