Question: What is the stable dividend policy Why should it be followed?

What is the purpose of dividend policy?

Dividend policy is the policy used by a company to decide how much it will pay-out to shareholders in the form of dividends. Usually a company retains a part of its earnings and distributes the other part as dividend.

What are the factors that influence dividend policy?

There are several factors which affect dividend policy, the most important of which are the following: (a) legal rules, (b) liquidity position, (c) the need to pay off debt, (d) restrictions in debt contract, (e) rate of expansion of assets, (f) profit rate, (g) stability of earnings, (h) access to capital markets, (i) …

What are the advantages of regular dividend policy?

Stable and regular dividend policy tends to make the shares of a company and investment rather than a speculation. The loyalty finds goodwill of shareholders towards the company increases with a stable dividend policy.

How do you determine dividend policy?

There are several different factors that may determine the dividend policy type favored by a business, including debt obligations, earnings stability, shareholder expectations, the company’s financial policy, and the impact of the trade cycle.

Which of the following is the most common dividend policy?

A stable dividend policy is the easiest and most commonly used. The goal of the policy is a steady and predictable dividend payout each year, which is what most investors seek.

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What are the 4 types of dividend policy?

Types of dividend policies

  • Residual dividend policy.
  • Stable dividend policy.
  • Progressive dividend policy.
  • Regular dividend policy.
  • Irregular dividend policy (special dividends)
  • Share buybacks.
  • Scrip dividends.

What is the advantage and disadvantage of dividend?

A major advantage of paying dividends is that they can help provide shareholder loyalty. Companies with a history of dividend payments are expected to maintain those payouts if possible. The major disadvantage of paying dividends is the cash paid out to investors cannot be used to grow the business.