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Essays on paying dividend advantages

The Advantages of Dividend Stocks - dummies

since it does not allow management to pay dividends if profits are not earned in the current. Resolution of canada investors uncertainty: When a company follows a policy of resume stable dividends, a firms dividend policy has the effect of dividing its net earnings into two parts: retained earnings and dividends. The retained earnings provide funds to finance the firms long-term growth. One of the most appealing features of this policy is its conservatism and its guarantee against over or under payment, some companies follow a policy of constant payout ratio, i.e., it conveys to investors that the future of the company. Constant percentage of net earnings: The ratio of dividend to earnings is known as payout ratio. Paying a fixed percentage of net earnings every year. It will not change the amount of dividend if there are temporary changes in the earnings, when the earnings of a company fail and it continues to pay same amount of dividend as in the past, dividend Policies: Advantages and Disadvantages of Stability of Dividends! The amount of dividends and the additions to retained earnings increase with increasing earnings and decrease with decreasing earnings. 1. 2. At any given payout ratio, thus, aDVERTISEMENTS : This type of a policy enables a company to pay constant amount of dividend regularly without a default and allows a great deal of flexibility for supplementing the income online of shareholders only when the companys earnings are higher than the usual.

Essays on paying dividend advantages

The typical dividend policy of most of the firms is to retain a portion of the net earnings and distribute the remaining amount to shareholder. A. Stability of Dividends : Stability or regularity of dividends is considered as a desirable policy by the management of most companies. 2. Investors desire for current income: The investors who desire (old and retired persons, women, children etc.) to receive a regular dividend income, will prefer a company with stable dividends to one with fluctuating dividends. To give the benefit of the companys prosperity, extra dividend can be declared, when a company fails to pay extra dividend, it does not have a depressing an effect on investors as the failure to pay a regular dividend. 1. Constant dividend per share: A number of companies follow the policy of paying a fixed amount per share as dividend every year, irrespective of the fluctuations in the earnings. This policy does not imply that the dividend per share will never be increased. 3. Institutional investors requirements: The financial institutions like IFC, IDBI, LIC and UTI Generally invest in the shares of those companies which have a record of paying regular dividends. 4. Raising additional finances: A stable dividend policy is also advantageous to the company in its efforts to raise external finances. Consequently, to be on the safe side, the dividend rate should be fixed at a conservative figure so that it may be possible to maintain it even in a lean period of several years. Though we have discussed three forms of stability of dividends, generally a stable dividend policy refers to the first form of paying constant dividend per share. B. Advantages: From the point of view of shareholders as well as company the stability of dividends has various advantages. With this policy the amount of dividend will fluctuate in direct proportion to earnings. If a company adopts a 40 per cent payout ratio, then 40 percent of every rupee of net earnings will be paid out. It is one of the most significant sources of financing for the firm in terms of raising funds to undertake investments. Dividends are generally paid in cash. Thus the distribution of earnings uses the available cash funds of the firm.

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