Page 194 - DMGT409Basic Financial Management

Mahesh Kumar Sarva, Lovely Professional University Unit 12: Dividend Policy

Unit 12: Dividend Policy Notes

CONTENTS

Objectives
Introduction
12.1 Meaning of Dividend Policy
12.2 Types of Dividend Policies
12.2.1 Stable Dividend Policy

12.2.2 Irregular Dividend Policy
12.2.3 No Dividend Policy
12.2.4 Residual Dividend Policy
12.3 Determinants of Dividend Policy

12.4 Summary
12.5 Keywords
12.6 Self Assessment
12.7 Review Questions
12.8 Further Readings

Objectives

After studying this unit, you will be able to:

Define meaning of dividend policy
Discuss determinants of dividend policy

Introduction

Finance is the life-blood 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 fi nance.

Profit is the primary motivating force for any economic activity, a business enterprise essentially
being an economic organization, it has to maximise 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.
Certainly, profit growth coupled with high level of profit and the ability to maintain reasonable

profit will help towards:

1. Ensuring that shareholders receive an adequate dividend;
2. Preserving the assets worth of the business;

3. Generating a suffi cient cash flow out of profits to provide capital for expansion; and

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