DIVIDEND POLICY

Compiled to Fulfill the Duties of Advanced Financial Management Courses

Lecturer: Prof. Dr. Isti Fadah, M.Si.

Authored By:

Izzah Mariami Sechimil (190810201004)

Redygta Meigy Maulana (1908102011543)

DEPARTMENT OF MANAGEMENT
FACULTY OF ECONOMICS AND BUSINESS
UNIVERSITY OF JEMBER
2020
 BAB I
INTRODUCTION

Issue Background
Dividend policy is an inseparable part of the company's funding decisions.
By definition, dividend policy is a decision whether the profits earned by the
company at the end of the year will be distributed to shareholders in the form of
dividends or will be retained to increase capital for future investment financing.
Dividend policy is a company policy that must be carefully considered and
considered. Dividend policy determines the amount of profit that can be
distributed to shareholders (dividends) and the allocation of profit that can be
retained by the company. The greater the retained profit, the smaller the profit that
will be distributed to the shareholders. In allocating the profits, various problems
were encountered. The company's profit is the first factor that is usually
considered by the board of directors, although to pay dividends, the company can
also do it, because of the reserves in the form of retained earnings. However, the
relationship between the company's profits and dividend decisions is still a vital
relationship. The company always tries to improve its image in a way that any
increase in profit will be followed by an increase in the portion of profit that is
divided as dividends and can also encourage an increase in the value of the
company's shares.
Problem Formulation
1. What is meant by dividend policy?
2. What factors influence dividend policy?
3. Dividend policy is divided into how many kinds?

Purpose
1. Know what dividend policy is
2. Knowing the factors that influence dividend policy.
3. Know the types of dividends
 BAB II
DISCUSSION

Definition of Dividend Policy

Dividend policy, according to I Made Sudana, is that dividend policy is a
part of company spending decisions, especially with regard to internal company
spending. This is because the size of the dividends distributed will affect the size
of the retained earnings. Retained earnings are thus one of the most important
sources of funds to finance company growth, while dividends are cash flows paid
to shareholders or (equity inventors). If the company chooses to distribute profits
as dividends, it will reduce retained earnings and further reduce the total sources
of internal or internal financial funds. Conversely, if the company chooses to
retain the profits it earns, the capacity for internal fund formation will be even
greater.

Types of Dividends
Based on the form of dividends paid, dividends can be divided into two
types, namely; cash dividend (cash dividend) and stock dividend (stock dividend).
Cash dividends are dividends distributed in cash. Share dividends are dividends
distributed in the form of shares with a certain proportion. The value of a cash
dividend is of course in accordance with the cash value given, while the value of a
stock dividend can be calculated by the formula for the fair price of the share
dividend divided by the share dividend ratio. Based on the period of one financial
year, dividends can be divided into two types, namely; interm dividend and final
dividend. Interm dividend is dividend paid by the company between one financial
year and the following financial year or between one final dividend and the next
final dividend. In Indonesia, in general, the interm dividend is paid only once a
year. The final dividend is the dividend resulting from consideration after the
closing of the company's books in the previous year, which is paid in the
following financial year. This final dividend also takes into account and considers
its relationship with the interm dividend that has been paid for the financial year.
Dividend Policy Theory
There are several opinions and theories about dividends, including:
1. Dividend Irrelevance Theory (dividend irrelevance)
The theory which states that the company's dividend policy has no effect on
firm value or the cost of capital. MM concluded that the current company value is
not affected by dividend policy. The profit earned on the increase in share prices
due to dividend payments will be offset by a decrease in share prices due to the
sale of new shares. Therefore, shareholders can receive cash from the company at
this time in the form of dividend payments or receive it in the form of capital
gains. The prosperity of the shareholders is again not affected by current or future
dividend policies.
2. The Bird in The Hand Theory
Gordon and Lintner argue that investors feel safer to get income in the form
of dividend payments than waiting for capital gains. Meanwhile MM is of the
opinion and it has been proven mathematically that investors feel the same
whether they receive dividends now or receive capital gains in the future. Gordon
and Lintner assume that investors view one bird in the hand as more valuable than
a thousand birds in the air. Meanwhile MM believes that not all investors wish to
reinvest their dividends in the same or similar companies with the same risk,
therefore the level of risk of their future earnings is not determined by dividend
policy, but is determined by the level of risk of new investments.
3. Tax Preference Theory
Investors want the company to withhold profit after tax and use it for
investment financing rather than dividends in the form of cash. Therefore, the
company should determine a low dividend payout ratio or even distribute
dividends. Because dividends tend to be taxed at a higher rate than capital gains,
investors will ask for a higher rate of return for stocks with high dividend yields.
4. Devidend Relevance Theory
Dividends are relevant for uncertain conditions, investors can be affected by
dividend policy.
Factors Affecting Dividend Policy
According to Bambang Riyanto (2008: 267), the factors that influence a
company's dividend policy are as follows:
1. The Company's Liquidity Position
The cash position or liquidity of a company is an important factor that must be
considered before making a decision to determine the amount of dividends to be
paid to shareholders.
2. Fund Needs to Pay Debt
If the company determines that the repayment of its debts will be taken from
retained earnings, it means that the company must hold a large part of its income
for this purpose, which means that only a small part of the income or earnings can
be paid as dividends. In other words, the company must set a low dividend payout
ratio.
3. Company Growth Rate
The faster the growth rate of a company, the greater the need for funds to finance
the growth of the company. The greater the need for funds in the future to finance
its growth, the company is usually more likely to hold back its earnings than to be
paid out as dividends to shareholders keeping in mind the limitations of its costs.
4. Supervision of the Company
In internal spending in the context of maintaining "control" over the company, it
means reducing its dividend payout ratio.
 CHAPTER III
CLOSING

Conclusion
Dividend policy is an inseparable part of the company's funding decisions.
By definition, dividend policy is a decision whether the profits earned by the
company at the end of the year will be distributed to shareholders in the form of
dividends or will be retained to increase capital for future investment financing.
The factors that influence dividend policy are the company's liquidity position, the
need for funds to pay debt, the company's growth rate, supervision of the
company, the ability to borrow, the level of profit, return stability, and access to
the capital market. Opinions about dividend policy are opinions about dividend
irrelevance (irrelevant theory) and opinions about dividend relevance (relevant
theory). Types of dividend policies are a stable dividend policy, a dividend policy
with a minimum dividend amount plus a certain extra amount, a dividend policy
with a constant dividend payout ratio, and a stable dividend policy in distribution
decisions.
 REFERENCES

Atika Jauhari Hatta. 2002. Faktor-faktor yang Mempengaruhi Kebijakan Deviden.

Latiefasari Hani Diana. 2011. Analisis yang Mempengaruhi Faktor-faktor
Kebijakan Deviden. Semarang. Fakultas Ekonomi Universitas Diponegoro.