CLASSIFICATIONS &

FACTORS AFFECTING
DIVIDEND DICISION
Presented By
AJMAL ROSHAN E
M.Com 1st year
P201701
Dividend

A dividend is a distribution of profits by a corporation to its shareholders.

When a corporation earns a profit or surplus, it is able to pay a proportion of the
profit as a dividend to shareholders.
Any amount not distributed is taken to be re-invested in the business.
The current year profit as well as the retained earning of previous years are
available for distribution.
Distribution to shareholders may be in
 Cash
 Shares
 Assets
Dividend Decision

The dividend decision is concerned with the quantum of profits to be distributed

among shareholders.

A decision has to be taken whether all the profits are to be distributed, to retain
all the profits in business or keep a part of profits in the business and distribute
others among shareholders.

In simple words, a dividend policy dictate how much cash is returned to

shareholders.
Classification of Dividend Policy

Dividend may be classified according to:

 Sources from which they are derived
 Retained earnings
 Current profit
 Medium in which they are distributed
 Cash dividend
 Share dividend
 The regularity with which they are paid
 Interim dividend
 Annual dividend
Various Dividend Policies
 Regular dividend policy
• Under this policy, the company pays out dividends to its shareholders every year.
• If the company makes abnormal profits, the excess profits will not be distributed
to the shareholders but are withheld by the company as retained earnings.
• If the company makes a loss, the shareholders will still be paid a dividend under
the policy.
• The regular dividend policy is used by companies with a steady cash flow and
stable earnings.

 Stable dividend policy

• Under stable dividend policy, the percentage of profits paid out as dividend is
fixed.
• Investing in a company that follows such a policy is risky for investors as the
amount of dividends fluctuates with the level of profits.
 Irregular dividend policy
• Under this policy, the company is under no obligation to pay its shareholders
and the board of directors can decide what to do with the profits.
• If they make an abnormal profit in a certain year, they can decide to
distribute it to the shareholders or not pay any dividend at all and instead
keep the profits for business expansion and future projects.
• The irregular dividend policy is used by companies that do not enjoy a steady
cash flow or lack liquidity.

 No dividend policy
• Under this policy the company doesn’t distribute dividends to shareholders.
• Any profits earned by the company is retained and reinvested into the business
for future growth.
• Companies that don’t give out dividends are constantly growing and expanding
and shareholders invest in them because the value of the company stock
appreciates.
Factors Affecting Dividend Decision
1) Stability of earnings
2) Financing policy of the company
3) Liquidity of funds
4) Dividend policy of competitive concerns
5) Past dividend rates
6) Debt obligations
7) Ability to Borrow
8) Profit Rate
9) Legal requirements
10) Corporate Taxation policy
11) Effect of trade cycle
12) Attitude of the interested group
Thank You
Thank You