FINANCIAL MANAGEMENT

DIVIDEND…

Dividend ?
 Types Of Dividend ?
Factors Affecting Dividend Policy ?

HARIPRASAD.S
S3 . MBA
ISMS
 Dividend
 Dividends are payments made by
a corporation to its shareholder members. It is
the portion of corporate profits paid out to
stockholders.
 When a corporation earns a profit or surplus,
that money can be put to two uses:
 it can either be re-invested in the business
(called retained earnings), or it can be
distributed to shareholders.
 A dividend is allocated as a fixed amount per
share. Therefore, a shareholder receives a
dividend in proportion to their shareholding.
 Dividends are usually paid in the form of cash.
Types Of Dividend ?
1. Cash dividend

2. Stock or bonus dividend

3. Scrip dividend

4. Property dividend

5. Bond dividend
Cash dividend
 It is the normal amount paid to the
shareholders at the end of the year .
 Distribution of cash reduces the net worth of
the firm but cash paid to the shareholder only
after careful cash planning of the year.
 Dividends which are not paid more than once
in the year is called annual dividend.
 Dividends should be declared after the closing
of the accounts of the firm.
 Stock or bonus dividend
 Shareholders do not always receive dividends in the form of cash,
sometimes a firm issues dividend in the form of additional share,
called stock/bonus dividend.
 It is a permanent method of capitalization of earnings.
 Surplus amount which is distributed in the form of stock
dividends becomes a permanent investment of the company
 Stock dividend is also called bonus shares
 Shareholders are allowed to sell this stock when they received it.
 Stock Dividend – A payment of additional shares of stock to
shareholders. Often used in place of or in addition to a cash
dividend.
Scrip dividend

 It is a promise to a shareholder to pay a dividend at a

future date
 The scrip in the form of promissory note with interest
 It is a temporary promise given to the shareholder
when the position of the firm for declaring dividends
is not sound
Property dividend

 Under exceptional circumstances a firm sometimes

pays property dividend to a shareholder in the form of
asset

 These are non–recurring in nature and may be once in

the lifetime of the firm.

 The directors would usually not like to issue such a

dividend
Bond dividend

 Here the company issues bonds by way of dividend

 Sometimes the company has no sufficient fund ,
 So the DIVIDEND paid in the form of BOND.
 Postponement of immediate payment of DIVIDEND in
CASH.
 Regular interest to bond holder
 Payment made on due date.
 Factors Affecting Dividend
1.
Policy ?
External factors
a. General state of the Economy
 Uncertain Conditions
 Depression
 Inflation
a. Legal restrictions
 Companies Act 1956 ACT….SEVERAL RESTRICTIONS….
a. Tax policy
 The Govt. may give tax incentives to companies ,retaining larger
share of their earnings. In such a case the management may be
inclined to retain a larger amount of the firm’s earnings.
 2. Internal factors
a. Desire of the shareholders
 Capital Gain
 For getting Regular Dividend
b. Financial needs of the company
 Chance of direct conflict between
Shareholders and Financial needs of the
Company
 To maximize Shareholders Wealth
 Retain only better Investment opportunities
 Financially sound
c. Nature of earnings
 Stable Earnings
d. Desire of control
 The desire shareholder to retain…
 The management to retain control over the
company…
e. Liquidity position
 CASH OUT FLOW- PAYMENT OF
DIVIDENDS
 Insufficient Cash Resources
Thank you….