CONCEPT AND NEED

OF DIVIDEND POLICY
Presentation By: Riya Sandip
Mohidekar
[ Division A , Roll Number 214]
 What is dividend ?
• A dividend is the distribution of corporate
profits to eligible shareholders.
• Dividend is a payment made by company as a
reward to investor for putting their money in
venture.
• Many companies do not pay dividend and
instead retain earnings to be invested back
into the company.
 Dividend policy

• The dividend policy used by a company can

affect the value of enterprise.
• The policy chosen must align with the
company’s goals and maximize its value for its
shareholders.
• The directors need to take a lot of factors into
consideration when making in decision, such as
the growth prospects of the company and
future projects.
 Various dividend policy:
• Regular dividend policy
• Stable dividend policy
• Irregular dividend policy
• No dividend policy
 Regular dividend policy:
• Under regular dividend policy the company
pays out dividends to its shareholders every
year
• The regular dividend is used by companies with
a steady cash flow and stable earnings.
• Companies that pay out dividends this way are
considered low risk investments because while
the dividend payments are regular, they may
not be very high.
 Stable dividend policy:
• Under stable dividend policy, the percentage
of profit 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.
• Shareholders face a lot of uncertainty as they
are not sure of the exact dividend they will
receive.
 Irregular dividend policy:
• Under the irregular dividend policy, the company is
under no obligation to pay its shareholders and the
board of directors decide what to do with the profits.
• The Irregular dividend policy is used by the
companies that do not enjoy steady cash flow or
lack liquidity.
• Investors who invest in a company that follows the
policy face very high risks as there is a possibility of
not receiving any dividends during the financial year.
 No dividend policy:
• Under the no dividend policy the company do not
distribute dividends to the shareholders.
• It is because any profit earned is retained or
reinvested into the business for future growth.
• Companies that don’t give out dividend are constantly
growing and expanding and shareholders invest in
them because the value of company stock
appreciates.
• For investors, share price appreciation is more
valuable that a dividend pay out.
 Need of dividend policy:
• Following are some of the reasons for which
dividend policy is needed in every business
organization:
1. Develop shareholder’s trust.
2. Future prospect.
3. Equity evaluation.
4. market value stability of shares.
5. Market for preference shares and debentures.
6. Raising of surplus funds.
Thank you