Types of Dividend

1. TYPES OF DIVIDEND
POLICY

2. What is a Dividend Policy?
✔ Dividend policies are one of the important decisions taken
by the company.
✔ Several factors affect the pay-out policy of the company,
which includes various types of dividends model as well as
repurchasing shares.
✔ Dividend policies can be framed as per the requirements of
the companies.
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3. In other words,
✔ Dividend policy of a company is the strategy followed to decide the
amount of dividends and the timing of the payments.
✔ There are various factors that frame a dividend policy of the company.
✔ Availability of better investment opportunities, estimated volatility of
future earnings, tax considerations, financial flexibility, flotation
costs, and various other legal restrictions affect a company’s dividend
policy
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6. 1. Regular dividend policy
Under the regular dividend policy, the company pays out
dividends to its shareholders every year.
If the company makes abnormal profits (very high profits),
the excess profits will not be distributed to the shareholders
but are withheld by the company as retained earnings.
If the company makes a loss, the shareholders will still be paid
a dividend under the policy.

7. “
Stable dividend policy
✔ Under the stable dividend policy, the percentage of
profits paid out as dividends is fixed
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STABLE
DIVIDEND
POLICY
Constant
dividend per
share
Constant
payout ratio
Stable rupee
dividend plus
extra dividend

9. .
Constant dividend per share:
Some companies follow a policy
of paying fixed dividend per
share irrespective of the level
of earnings year after year.
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10. ✔ Constant pay-out ratio means payment of a fixed percentage of
net earnings as dividends every year.
✔ The amount of dividend in such a policy fluctuates in direct
proportion to the earnings of the company.
✔ The policy of constant pay-out is preferred by the firms because
it is related to their ability to pay dividends.
Constant payout ratio:
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11. Stable rupee dividend plus extra dividend:
✔ Some companies follow a policy of paying
constant low dividend per share plus an extra
dividend in the years of high profits. Such a policy
is most suitable to the firm having fluctuating
earnings from year to year.
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12. Irregular dividend policy
✔ Under the irregular dividend policy, the
company is under no obligation to pay its
shareholders and the board of directors
can decide what to do with the profits.
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13. . No dividend policy
✔ Under the no dividend policy, the company
doesn’t distribute dividends to
shareholders. It is because any profits
earned is retained and reinvested into the
business for future growth pay-out.
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14. Policy of Regular Stock Dividends:
✔ Firm pursuing this policy pays dividends in
stock instead of cash. Stocks to pay dividends
are designated as ‘bonus shares’ which are
very frequently used to capitalize reinvested
earnings of the firm.
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