FINANCIAL MANAGEMENTDIVIDEND…Dividend ? Types Of Dividend ?Factors Affecting Dividend Policy ? HARIPRASAD.S S3 . MBA ISMS
Dividend Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be distributed to shareholders. A dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. Dividends are usually paid in the form of cash.
Types Of Dividend ?1. Cash dividend2. Stock or bonus dividend3. Scrip dividend4. Property dividend5. Bond dividend
Cash dividend It is the normal amount paid to the shareholders at the end of the year . Distribution of cash reduces the net worth of the firm but cash paid to the shareholder only after careful cash planning of the year. Dividends which are not paid more than once in the year is called annual dividend. Dividends should be declared after the closing of the accounts of the firm.
Stock or bonus dividend Shareholders do not always receive dividends in the form of cash, sometimes a firm issues dividend in the form of additional share, called stock/bonus dividend. It is a permanent method of capitalization of earnings. Surplus amount which is distributed in the form of stock dividends becomes a permanent investment of the company Stock dividend is also called bonus shares Shareholders are allowed to sell this stock when they received it. Stock Dividend – A payment of additional shares of stock to shareholders. Often used in place of or in addition to a cash dividend.
Scrip dividend It is a promise to a shareholder to pay a dividend at a future date The scrip in the form of promissory note with interest It is a temporary promise given to the shareholder when the position of the firm for declaring dividends is not sound
Property dividend Under exceptional circumstances a firm sometimes pays property dividend to a shareholder in the form of asset These are non–recurring in nature and may be once in the lifetime of the firm. The directors would usually not like to issue such a dividend
Bond dividend Here the company issues bonds by way of dividend Sometimes the company has no sufficient fund , So the DIVIDEND paid in the form of BOND. Postponement of immediate payment of DIVIDEND in CASH. Regular interest to bond holder Payment made on due date.
Factors Affecting Dividend1. Policy ? External factorsa. General state of the Economy Uncertain Conditions Depression Inflationa. Legal restrictions Companies Act 1956 ACT….SEVERAL RESTRICTIONS….a. Tax policy The Govt. may give tax incentives to companies ,retaining larger share of their earnings. In such a case the management may be inclined to retain a larger amount of the firm’s earnings.
2. Internal factorsa. Desire of the shareholders Capital Gain For getting Regular Dividendb. Financial needs of the company Chance of direct conflict between Shareholders and Financial needs of the Company To maximize Shareholders Wealth Retain only better Investment opportunities Financially sound
c. Nature of earnings Stable Earningsd. Desire of control The desire shareholder to retain… The management to retain control over the company…e. Liquidity position CASH OUT FLOW- PAYMENT OF DIVIDENDS Insufficient Cash Resources