The document discusses dividend policies, outlining that dividends are part of earnings distributed to shareholders while retained earnings are kept for future use. It details factors influencing dividend decisions such as legal restrictions, earnings trends, shareholder desires, industry type, company age, financial needs, and government economic policies. Different types of dividend policies are categorized, including regular, stable, irregular, and no dividend policies, reflecting companies' varying financial situations and strategies.

1. Dividend Policy

2.  Dividend - Part of Earnings which is distributed to
the shareholders of the company in proportion to
the paid up amount of capital held by them.
 Retained Earnings - Rest part which is retained
as reserve or for future uncertainties.
As per section 2(35) of the Companies Act 2013- The
term “Dividend” includes any interim dividend.
Meaning of Dividend

3. Determinants Of dividend
Policy
1. Legal Restrictions
2. Magnitude and trend of earnings
3. Desire and type of shareholders
4. Nature of industry
5. Age of the company
6. Future financial requirement
7. Government economic policy
8. Taxation policy

4.  Legal provision related to dividends are laid
down in sec 93,205,205A, 206 and 207 of
companies act. Dividend can be paid only out
of current profit or past profit after providing
depreciation Company providing more than
10% dividend to transfer certain percentage of
current year profit to reserves.
Legal Restrictions

5.  The amount and trend of earnings is an
important in dividend policy. Dividend can be
paid only out of present or past year‘s profit;
earnings of a company fix the upper limit on
dividends. Past trend is kept in mind while
decision dividend decision .
Magnitude and trend of earnings

6.  Discretion to declare dividend or not is decided by the
board of directors. Directors give importance to the
desire of the shareholder in declaration of dividends.
Desire for dividend depends on their economic status.
Investor such as retired person, widows and other
economically weaker person view dividend as a
source of funds to meet their day-to-day living
expenses – the company will pay regular dividend.
Investor with high income tax bracket will not prefer
current dividend they will expect only capital gains.

Desire and type of shareholders

7.  Nature of industry to which the company is
engaged also affects dividend policy. Certain
industry has steady and stable demand irrespective
of prevailing economic condition. Eg : people used
to drink liquor both in boom and in recession. Such
firm gets regular earning and hence follows
consistent dividend policy. Earning are uncertain in
such case conservative dividend policy is used. Such
firms should retain substantial part of their current
earnings during boom period in order to provide
funds to pay dividends in recession period.
Nature of industry

8.  Age also influence the dividend decision of the
company. Newly established concern has limit
in payment of dividend and retain substantial
part for financing future growth and
development Older company has sufficient
reserves can pay liberal dividends.
Age of the company

9.  Future financial requirement is to be
considered while deciding dividend. Company
has profitable investment opportunities then
the firm will pay limited amount as dividend
and invest the remaining amount. If there is no
investment opportunities then the company
will pay more dividend.
Future financial requirement

10.  The dividend policy of a firm has also to be
adjusted to the economic policy of the
government.
 In 1974 and 1975 companies were allowed to
pay dividends not more than 33 % of their
profits or 12% on paid-up value of the shares,
whichever was lower.
Government economic policy

11.  A high or low rate of business taxation affect
the net earnings of company and thereby its
dividend policy. A firm‘s dividend policy may be
dictated by the income-tax status of its
shareholders. If the dividend income of
shareholders is heavily taxed being in high
income bracket, then the shareholder will
prefer capital gains and bonus shares.
Taxation policy

12. TYPES OF DIVIDEND POLICY
 REGULAR DIVIDEND POLICY
Payment of dividend at usual rate is termed as
regular dividend. The investor such as retired
persons, widows, other economically weaker
persons prefer to get regular dividend.
The regular dividend can be maintained only by
the company of long standing and stable
earnings. A company should establish the regular
dividend at a lower rate as compared to average
earnings of the company.

13.  STABLE DIVIDEND POLICY
The stability of dividend means consistency in the
stream of dividend payments. It means payment of
certain minimum amount of dividend regularly . A
stable dividend policy may be established in any of the
following three forms:
1. Constant Dividend Per Share
Some companies follow a policy of paying fixed
dividend per share irrespective of the level of earning
year after year. Such firm creates reserves i.e dividend
equalization reserves to enable them to pay the fixed
dividend even in the year when the earnings are not
sufficient or when there are losses. The policy of
constant dividend per share is more suitable to
concerns whose earnings are stable over a no: of years.

14. 2. Constant Pay Out Ratio
It means payment of fixed percentage of net
earnings as dividend every year. The amount of
dividend in such policy fluctuates in direct
proportion to the earnings of the company. The
policy of constant payout is preferred by the firm
because it is related to their ability to pay
dividends.
3. Stable Rupee Dividend Plus Extra Dividend
Some companies follow a policy of paying
constant low dividend per share plus extra
dividend in the years of high profits such policy is
more suitable to the firm having fluctuating
earnings from year to year.

15.  IRREGULAR DIVIDEND POLICY
This policy is followed when there is uncertainty
of earnings, unsuccessful business operations,
lack of liquid resources, fear of adverse affects
of regular dividend on the financial standing of
the company.
 NO DIVIDEND POLICY
A company may follow a policy of paying no
dividends presently because of its unfavorable
working capital position or on account of
requirements of funds for future expansions and
growth.