Dividend Decisions

1. DIVIDEND
DECISIONS

2. BACKGROUND
▪ The three important decisions taken by a
finance manager are : Investment,
Financing and Dividend decisions
▪ Dividend decision is an important decision
to be taken by a financial manager
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3. PROFITS
DIVIDEND DECISION
RETAINED
DIVISIBLE

4. A dividend is a distribution of a portion of a
company's earnings, decided by the board of
directors.
A share of the after-tax profit of a company,
distributed to its shareholders according to
the number and class of shares held by them
is called dividend.
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5. ▪ The amount and timing of the dividend
is decided by the board of directors,
who also determine whether it is paid
out of current earnings or the past
earnings kept as reserve.
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6. Dividends cannot be declared
except out of profits. If a company
declares and pays a dividend in the
absence of profits, the directors
will have to make good the amount
to the company from their own
pockets.
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7. 7
Profit or a portion of profit that can be legally
distributed as a dividend to the shareholders is
known as Divisible Profit.
All profit of the company is not divisible and number
of factors should be considered while determining
divisible profit of the company.
Hence, profits available for dividend to shareholders
are known as divisible profits.

8. DEFINITION
▪ Dividend defined under section 2(35) of the
Companies Act, 2013, includes any interim
dividend.
▪ Section defines dividend so as to mean a
distribution of any sums to Members out of
profits and wherever permitted out of free
reserves available for the purpose.
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9. ▪ The power to pay dividend is inherent in a
company and is not derived from the Companies
Act, 2013 or the Memorandum or Articles of
Association although the Act and the Articles
regulate the manner in which dividends are to be
declared.
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10. ▪ Right to claim dividend will only arise after a
dividend is declared by the company in general
meeting and until and unless it is so declared, the
shareholder has no claim against the company in
respect of it.
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11. ▪ Section 51 of the Act, states that a
company may, if so authorized by its
articles, pay dividend in proportion to
the amount paid up on each share
▪ As per Regulation 43 of SEBI(LODR)
Regulations, 2015 the listed companies
are mandated to declare and disclose
the dividend on per share basis only
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12. Sources of declaration of dividend
▪ Section 123(1) of Companies Act 2013 provides that
the dividend shall be declared or paid by a company for
any financial year only out of —
▪ (i) the profits of the company for that year arrived at
after providing for depreciation in accordance with the
provisions of sub-section (2), or
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13. ▪ (ii)out of the profits of the company for
any previous financial year or years
arrived at after providing for
depreciation in accordance with the
provisions of that sub-section and
remaining undistributed, or
▪ (iii) out of both;
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14. A company shall also not declare any Dividend, if it has
defaulted in –
▪ (a) Redemption of debentures or payment of interest
thereon or creation of debenture redemption reserve,
▪ (b) Redemption of preference shares or creation of
capital redemption reserve,
▪ (c) Payment of Dividend declared in the current or
previous financial year(s), or
▪ (d) Repayment of any term loan to a bank or financial
institution or interest thereon.
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15. Payment of Dividend:
▪ Inferring from section 124(1) dividend must be
paid within 30 days from the date of declaration
of dividend.
▪ SS-3 hereby clarifies that the Dividend shall be
deposited in a separate bank account within five
days from the date of declaration and shall be
paid within thirty days of declaration.
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16. Mode of payment:
▪ If any dividend payable in cash may be
paid by cheque or warrant or in any
electronic mode to the shareholder
entitled to the payment of the dividend
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Unpaid dividend is
transferred to unpaid
dividend account within
next 7 days
Unpaid dividend is
transferred to unpaid
dividend account within
next 7 days
Dividend is proposed by
Board in Board Meeting
Dividend is declared by
members in General
Meeting
Dividend shall be
deposited in a separate
bank account within
five days from the date
of declaration

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UNPAID DIVIDEND AND UNCLAIMEDDIVIDEND
When adividend hasbeen declared byacompanybuthasnotbeen paid or
claimed withinthirtydays fromthedateofthedeclaration to anyshareholder
entitledtothepaymentofthe dividend,it is known asunpaid dividend.
When adividend hasbeen declaredbyacompanybuthasnotbeen claimed by
theshareholder,thenitis called Unclaimed dividend

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DIVIDEND NOT PAID (Section 124)
Section 124(1) states that when a dividend has been
declared by a company but has not been paid or claimed
within thirty days from the date of the declaration to any
shareholder entitled to the payment of the dividend, the
company shall, within seven days from the date of expiry of
the said period of thirty days, transfer the total amount of
dividend which remains unpaid or unclaimed to a special
account to be opened by the company in that behalf in any
scheduled bank to be called the Unpaid Dividend Account.

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When a company decides to pay dividends twice a year it pays
an interim dividend at some time before the end of its financial
year and then a final dividend at the end of the financial year.
So, Interim Dividend is the dividend declared and distributed by
a company to its shareholders prior to the determination of final
profit position for the financial year.
A final dividend refers to the dividend declared by a
company's board of directors after the company has issued
its full-year financial statements for its fiscal year.

21. Let’s review some concepts
What is dividend? Interim Dividend? Fina dividend?
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Sources of dividend Payment of dividend Mode of payment?

22. Thanks!
Any
questions?
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