The document outlines the factors influencing a company's dividend policy, defining it as the approach to determine payments to shareholders. Key factors include earnings stability, corporation age, liquidity, shareholder distribution, additional capital needs, trade cycles, government and taxation policies, legal requirements, historical dividend rates, borrowing ability, control desires, loan repayments, timing, and the regularity of payments. These factors collectively impact how a company decides on dividend payments to its shareholders.

1. FACTORS AFFECTING
DIVIDEND POLICY
Finance Management
Sharon M
MBG 1505032
SHARON M, INSTITUTE OF MANAGEMENT IN KERALA

2. DIVIDEND POLICY
“Policy that a company uses to decide the
amount to be paid to the shareholders in form of
dividends”
A company in growth may either choose to pay
dividend or may re-invest its profits
A company paying dividend should decide on the
amount to be paid and the time of payment
 Potential shareholders may critically evaluate
dividend policy before investing SHARON M, INSTITUTE OF MANAGEMENT IN KERALA

3. FACTORS AFFECTING DIVIDEND
POLICY
1.Stability of Earnings:
>More stable incomes, consistent dividend policy
>Often seen with firms dealing in necessities
2.Age of Corporation
>A newly established corporation will require more money for expansion and
may not a rigid policy
3.Liquidity of funds
>Greater the liquidity, greater company’s ability ot pay dividend
SHARON M, INSTITUTE OF MANAGEMENT IN KERALA

4. 4.Extend of Share Distribution:
>A closely held business (shareholders are known each other) will make it easy
for the company to have a flexible policy
>A widely held company (large,diverse shareholders) will demand higher and
frequent dividends
5.Need for Additional Capital
>Greater the need for additional capital, less likely for the company to have a
rigid policy
6.Trade Cycles:
>Dividend policy is adjusted to market oscillations
>During boom, a company may hold a part of profit as a reserve for
contingencies
>Higher rate of dividend may be used to attract investments during off periods
7.Government Policies
>Government might restrict the distribution of dividends
SHARON M, INSTITUTE OF MANAGEMENT IN KERALA

5. 8.Taxation Policy:
>Higher the tax rates, lower the dividends
>Divident-tax may be levied for distribution of dividend beyond a certain limit
>In India dividend tax is 7.5% for dividends beyond 10%
9.Legal Requirements:
>Company is required to provide for depreciation on its fixed and tangible
assets before declaring dividend on shares.
>Dividend should not be distributed out of capita
> Contractual liabilities should be fulfilled ,like,payment of dividend on
preference shares in priority over ordinary dividend
10. Past dividend Rate
>Current rate should be around average past rate
>Abnormally low or high rates will arouse speculation
SHARON M, INSTITUTE OF MANAGEMENT IN KERALA

6. 11.Ability to Borrow:
>Greater the ability to borrow (established firms), better would be the dividend
policy
12.Policy of Control:
>If greater control is desired, dividends will be declared at low rates to keep out
investors
13.Repayments of loan:
>Loan indebtedness usually means low or now dividends
>Sometimes lenders may demand restricted dividend distribution till the
repayments
14.Time :
>Dividend declaration should be at the time when cash outflow is at the
minimum
15.Regularity and Stability
>Greater the regularity and stability of dividend payment, more investers will be
attracted. SHARON M, INSTITUTE OF MANAGEMENT IN KERALA

7. THANK YOU
SHARON M, INSTITUTE OF MANAGEMENT IN KERALA