Which Factors Affecting Dividend Policy?, Discuss The Various Types Of Dividend Policy?, Discuss Various Types Of Dividend Policy? ,লভ্যাংশনীতির বিভিন্ন পদ্ধতি বর্ণনা কর?, Discuss Different Types Of Dividend Policy

প্রশ্ন সমাধান: Which factors affecting dividend policy?, Discuss the various types of dividend policy?, Discuss various types of dividend policy? ,লভ্যাংশনীতির বিভিন্ন পদ্ধতি বর্ণনা কর?, Discuss different types of dividend policy,

iscuss the various types of dividend policy?, Discuss various types of dividend policy? ,লভ্যাংশনীতির বিভিন্ন পদ্ধতি বর্ণনা কর?, Discuss different types of dividend policy

Ans: Dividend policy depends upon the name of the firm, type of shareholder and profitable position. On the basis of dividend declaration by the firm, the dividend

may be classified under the following types:

Residual Dividend Policy: It is a policy in which the dividend paid set equal to the actual earnings as reduced by the amount of retained earnings necessary to finance the firm’s optimal capital budget. The basis of the policy is that the investors prefer to have the firm retain and earnings rather than paying them as dividends.
Stable Dividend Policy: Such dividend policy refers to payment of dividend each year or periodically increasing the dividends at a constant rate. In such a policy the annual taka dividend is relatively predicable by investors.
Constant Payout Ratio Policy: Such a dividend policy refers to payment of a constant parentage of earnings as dividends each financial year. But in practice, because firms earnings surely will fluctuate, this policy would mean that the amount of dividend would also vary.
Regular Dividend Policy: A policy of paying a low regular dividend plus a year-end extra in good years is compromise between a stable dividend and a constant payout rate. Such a policy gives the firm flexibility, yet investors can count on receiving at lest a minimum dividend. Therefore, it is supplemental dividend paid in good years and excess funds are available for distribution.
No Dividend Policy: Sometimes the company may follow no dividend policy because of its unfavorable working capital position of the amount required for future growth of the concerns.

These are the major classifications of dividend policy.

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Which factors affecting dividend policy?

Ans: In below all are factors of influencing financial decision:

Profitable position of the firm : Dividend decision depends on the profitable position of the business concern. When the firm earns more profit, they can distribute more dividends to the shareholders.
Legal Constraints: The companies Act 1994 has put several restrictions regarding payments and declaration of dividends. Similarly, Income Tax Act, 1984 also lays down certain restrictions on payment of dividends.
Sources of Finance: If the firm has finance sources, it will be easy to mobilize large finances. The firm shall not go for retained earnings.
Tax policy : Tax policy of the government also affects the dividend policy of the firm. When the government gives tax incentives, the company pays more dividends.
Magnitude and Trend in EPS: EPS is the basis for dividend. The size of the EPS and the trend in EPS in recent years set how much can be paid as dividend; a high and steadily increasing EPS enables a high and steadily increasing DPS. When EPS fluctuates a different dividend policy has to be adopted.
Liquidity and working capital position : Apparently, distribution of dividend results in outflow of cash and as such a reduction in working capital position. Even in a year when a company has earned adequate profit to warrant a dividend declaration, it may confront a weak liquidity position. Under the circumstances, while one company may prefer not to pay a dividend since the payment may impair liquidity, another company following a stable dividend policy may wish to declare dividends. even by resorting to borrowings for dividend payment in cash.
Impact on share price : The impact of dividends on market price of shares, though cannot be precisely measured, still one could gauge the influence of dividend on the market price of shares. The dividend policy pursued by a company naturally depends on how far the management is concerned about the market place of shares. Generally, an increase in dividend payout results in a hike in the market price of shares. This is significant as it has a bearing on new issues.
Control consideration : Where the directors wish to retain control. they may desire to finance growth programmed by retained earnings, since issue of fresh equity shares fro financing growth plan may lead to dilution of control of the dominating group. So, low dividend payout is favored by Board.
Type of Shareholders: When the shareholders of the company prefer current dividend rather man capital gain a high payment is desirable. This happens so, when the shareholders are in low tax brackets, the are ‘less moneyed and require periodical income or they have better investment avenues than the company. Retired