What is Dividends Types of cash dividends Procedure for Dividend Payment Ex-Dividend Date Is Important Do Dividends Matter ? DIVIDEND THEORIES DIVIDENDS AND THE REAL WORLD Dividends And Signaling CLIENTELE EFFECT HYPOTHESIS DIVIDEND POLICY PRACTICE Residual dividend policy DIVIDEND AND INVESTMENT POLICY KEY FACTORS THAT INFLUENCE DIVIDEND POLICY

1. Policy

2. MEMBERS
0060 R. N. Perera
0036 G.D.P. Deshapriya
0039 N. Hashan
0015 N. Dhananjaya
0041 A. Livera
0095 S. Sadaruwan

3. Titles
I. What is Dividends
II. Types of cash dividends
III. Procedure for Dividend Payment
IV. Ex-Dividend Date Is Important
V. Do Dividends Matter ?
VI. DIVIDEND THEORIES
VII. DIVIDENDS AND THE REAL WORLD
VIII.Dividends And Signaling
IX. CLIENTELE EFFECT HYPOTHESIS
X. DIVIDEND POLICY PRACTICE
XI. Residual dividend policy
XII. DIVIDEND AND INVESTMENT POLICY
XIII. KEY FACTORS THAT INFLUENCE DIVIDEND POLICY

4. What is Dividends
A sum of money paid regularly (typically
annually) by a company to its shareholders
out of its profits This are usually paid in form
of cash.

5. Types of cash dividends
 Regular cash dividends – cash payments made
directly to stockholders, usually each quarter
 Extra dividends – indication that the ‘’extra’’
amount may not be repeated in the future
 Special dividends – similar to extra dividend, but
definitely won’t be repeated
 Liquidating dividends – some or all of the business
has been sold

6. Procedure for Dividend Payment

7. Procedure for Dividend Payment
Declaration date : The board of directors declares a
payment of dividends.
Ex-dividend date :The first day that the seller of a stock is
entitled of the dividend.
Record date :The corporation prepares a list of all
individuals believed to be stockholders as
of 6 November.
Payment date :Dividend cheques are mailed to
shareholders of record.

8. Ex-Dividend Date Is Important
In a perfect world, the stock price will fall
by the amount of the dividend on the ex-
dividend date.

9. Do Dividends Matter ?
• Dividend policy may not matter
–Dividend policy is the decision to pay
dividends versus retaining funds to
reinvest in the firm.
–In theory, if the firm reinvests capital
now, it will grow and can pay higher
dividends in the future
The value of the stock is based on the present value of
expected future dividends

10. DIVIDEND THEORIES
There are two types dividend theories
According
to this
theory
dividend
decission do
not affect
value of firm
According
to this
theory
divident
decission
affwct value
of the firm

11. DIVIDENDS AND THE REAL WORLD
REAL WORLD FACTORS FAVORING HIGH
DIVIDENDS
 Desire for current income: Retired investors
 Behavioral finance
 Agency costs

12. Behavioral Finance
A natural rule people might create to prevent
themselves from over consuming their wealth is
“only consume the dividend,but don’t touch
the portfolio capital.”
In other ward,people may like
dividends becouse dividends help them
surmount self-control problem through the
creation of simple rules.

13. Dividends And Signaling
• Definition:
– announcement of increased dividend payments by a company gives strong
signals about the bright future prospects of the company.
• Description:
– An announcement of an increase in dividend pay out is taken very
positively in the market and helps building a very positive image of the
company.
 Generally, dividend signaling is done by the company when it changes
the amount of dividend to be paid to shareholders.

14. CLIENTELE EFFECT HYPOTHESIS
 Tax- free foundation and retirees at lower
marginal tax rates prefer cash now and on a
predictable basis.
 Investors at higher marginal tax rates might
prefer capital gains to dividends,with capital
gains they can better time their tax liabilities.
 Each firm, therefore, acttracts the type of
investors that likes its dividend policy.

15. DIVIDEND POLICY PRACTICE
•Residual dividend policy.
•Constant growth dividend policy-
{dividends increased at a constant rate of each
year.}
•Constant payout ratio –
{pay a constant percent of earnings each year.}
•Compromis dividend policy

16. Residual dividend policy
DEFINITION
With a residual dividend policy, the firm
first finance its investments using its own
earnings.Dividends are paid out of the residual
earnings that are not needed to finance new
investment opportunities.
While this policy minimizes the cost of
financing ,it can lead to unstable dividends for
shareholders.

17. DIVIDEND AND INVESTMENT POLICY
• Firmsshould never forgo positive NPV projects to
increase a dividend(or to pay a dividend for the first
time.)
• Recall that one of the assumption underlying the
dividend –irrelavance arguments was “The
investment policy of the firm is set ahead of time and
is not altered by changes in dividend policy.”
• A final note :
- Dividends are relavent
- Divident policy is irrelavant

18. KEY FACTORS THAT INFLUENCE DIVIDEND POLICY
→ Legal restrictions
→ Magnitude and tend of earnings
→ Desire and type of shareholder
→ Nature of industry
→ Age of the compay
→ Taxation policy
→ Stage of business cycle

20. Inde
x
Student Name Slides no Topics
60 R. N. Perera 4,5,6 What is Dividends Types of cash
dividends
Procedure for
Dividend
Payment
36 G.D.P. Deshapriya 7,8 Ex-Dividend Date Is
Important
Do Dividends
Matter ?
39 N. Hashan 10,11,12 DIVIDEND THEORIES DIVIDENDS
AND THE REAL
WORLD
15 N. Dananjaya 13,14 Dividends And
Signaling
CLIENTELE
EFFECT
HYPOTHESIS
41 A. Livera 15,16 DIVIDEND POLICY
PRACTICE
Residual
dividend policy
95 S. Sadaruwan 17,18 DIVIDEND AND
INVESTMENT POLICY
KEY FACTORS
THAT
INFLUENCE
DIVIDEND
POLICY