Your question: Which of the following affects the dividend decision of a company?

What are the factors affecting the 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.

What are the factors affecting the dividend decision of a company explain any four factors?

(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.

What is dividend decision explain factors affecting dividend decision?

They are the net profit rule, the capital impairment rule and insolvency rule. 2. Firm’s liquidity position. Dividend payout is also affected by firm’s liquidity position. In spite of sufficient retained earnings, the firm may not be able to pay cash dividend if the earnings are not held in cash.

What is the dividend decision?

Dividend decision determines the division of earnings between payments to shareholders and retained earnings. The Dividend Decision, in Corporate finance, is a decision made by the directors of a company about the amount and timing of any cash payments made to the company’s stockholders.

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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.

How dividend decision affects the growth of business?

(ii) Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. Thus in growth companies, payment of dividend will be less as compared to non-growth companies. … Hence cash flow position affects dividend payment.

How are dividend and dividend decisions different?

“Dividend policy determines the ultimate distribution of the firm’s earnings between retention (that is reinvestment) and cash dividend payments of shareholders.” “Dividend policy means the practice that management follows in making dividend payout decisions, or in other words, the size and pattern of cash …

Who makes decisions about a company’s dividend policies?

Management must decide on the dividend amount, timing, and various other factors that influence dividend payments. There are three types of dividend policies—a stable dividend policy, a constant dividend policy, and a residual dividend policy.

What is dividend decision and example?

Because dividends take money out of the company, they have an impact on the company share price. … For example, if a stock is trading at $100 and pays a quarterly dividend of $3 per share, then the stock would open on the ex-dividend date at $97.