Page 210 - DMGT207_MANAGEMENT_OF_FINANCES

Rupesh Roshan Singh, Lovely Professional University Unit 9: Dividend Decisions

Unit 9: Dividend Decisions Notes

CONTENTS
Objectives
Introduction

9.1 Management of Profits
9.2 Dividend Policy
9.3 Types of Dividend Policies

9.3.1 Advantages of Stable Dividend Policy
9.3.2 Limitations of Stable Dividend Policy
9.4 Factors Influencing Dividend Policy
9.5 Forms of Dividends
9.6 Mathematical Approaches for Dividend Decisions

9.7 Summary
9.8 Keywords
9.9 Review Questions

9.10 Further Readings
Objectives

After studying this unit, you will be able to:
 Explain the meaning of dividend policy of management of profits;
 Discuss the different types of dividend policies, advantages and dangers of stable dividend
policy;
 Understand the factors that influence a firm's dividend policy.

Introduction

Finance is the lifeblood of business, without which a firm cannot promote, maintain and expand
and achieve its predetermined objective. Whether it is big, medium or small it needs finance.
Profit is the primary motivating force for any economic activity, a business enterprise essentially
being an economic organization, it has to maximize the welfare of its stakeholders. To this end,
the business undertaking has to earn profit from its operations. Profit is the excess of revenue
over expenses on conducting operations. In fact, profits are useful intermediate beacon towards
which a firm's capital should be directed. In this connection McAlpine rightly remarked that
profit cannot be ignored since it is both, a measure of the success of business and the means of its
survival and growth. To quote Bradly, "if an enterprise fails to make profit, capital invested is
eroded and if this situations, prolongs the enterprise ultimately ceases to exist." A well organised
profit planning program will help towards maintaining a level of profit, which will ensure the
concentration of the business and fulfillment of other responsibilities. Certainly, profit growth
coupled with high level of profit and the ability to maintain reasonable profit will help towards:

(i) Ensuring that shareholders receive an adequate dividend;

LOVELY PROFESSIONAL UNIVERSITY 205