Frequent question: How do growth opportunities as a factor affect dividend decision?

How do growth opportunities and stock market reaction affect the dividend decision?

The dividend per share is altered only when there is a consistent increase in earnings or full confidence in the earning potential. Growth prospects: Companies with higher growth prospects prefer to retain a greater portion of their earnings for future reinvestment. Accordingly, they pay lesser dividends.

What are the factors affecting dividend decisions?

The following are the some major factors which influence the dividend policy of the firm.

  • Legal requirements. There is no legal compulsion on the part of a company to distribute dividend. …
  • Firm’s liquidity position. …
  • Repayment need. …
  • Expected rate of return. …
  • Stability of earning.

How does cash flow position affect dividend decision?

Cash Flow Position :- Dividend payments require cash outflow. If a company is low on cash then the dividend will be lower as compared to the company which has more liquidity. Even if a company has higher profits, it will not be able to distribute high dividends if it does not have enough cash.

What is meant by dividend decision explain the factors affecting the dividend decision?

(i) Earning: The dividend is paid out of the present and reserved profits. Therefore, greater amount of total profit will ensure greater dividend. (ii) Stability of Earnings: A company having stable earnings is in a position to declare more dividends and vice-versa.

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How Does dividend policy affect the growth of a firm?

Dividend Pay Out Ratio is what determines the amount of dividend per share (Dividend Per Share). If a large dividend is paid then it will increase the stock price which also result in an increase in the firm value. Another determinant that may affect firm value is firm size (SIZE).

What are the factors affecting dividend decision Class 12?

Factors affecting dividend decision :

  • Amount of Earnings. Dividends are paid out of current and past earnings. …
  • Stability in Earnings. …
  • Stability of Dividends. …
  • Growth Opportunities. …
  • Cash Flow Position. …
  • Shareholders’Preference. …
  • Taxation Policy. …
  • Stock Market Reaction.

What are the factors affecting financial decisions?

Factors affecting financing decision :

  • Cost. The cost of raising funds from different sources are different. …
  • Risk. The risk associated to each of the source is different. …
  • Floatation Cost. …
  • Cash Flow Position of the Company. …
  • Fixed Operating Cost. …
  • Control Considerations. …
  • State of Capital Market. …
  • Return on Investment (RQl)

How does taxation policy affect dividend decisions state?

(iv) Taxation Policy: The choice between the payment of dividend and retaining the earnings is affected by the difference in the tax treatment of dividends and capital gains. If tax on dividend is higher, it is better to pay less dividends. If tax on dividend is less, higher dividends may be declared.