Financial Management & Corporate Finance 2 Sem AKTU

Types of Dividend Policy 

•Companies can adopt different types of dividend policies based on their financial situation, growth prospects, investor preferences, and strategic goals. Each type of dividend policy reflects a different approach to distributing profits to shareholders. Here are some common types of dividend policies:

•Regular Dividend Policy: Under this policy, a company commits to paying a fixed amount or a predetermined percentage of its profits as dividends at regular intervals, such as quarterly or annually. The objective is to provide a stable and predictable income to shareholders.

•Stable Dividend Policy: This policy aims to maintain a consistent dividend payment over time, regardless of fluctuations in earnings. Even if the company’s earnings vary from year to year, the dividend per share remains relatively stable.

•Constant Payout Ratio Policy: In this policy, a company determines a certain percentage of its earnings that will be paid out as dividends. As earnings change, the dividend amount adjusts accordingly, maintaining a consistent payout ratio.

•Residual Dividend Policy: Under this policy, a company first funds its capital expenditures and other investment needs. After covering these expenses, the remaining profits are distributed as dividends. This approach emphasizes the use of retained earnings for growth.

•Low Payout (Retention) Policy: Companies following this policy retain a significant portion of their earnings to reinvest in growth opportunities. Dividend payments are intentionally kept low to fund internal projects and expansion.

•High Payout Policy: Companies adopting this policy distribute a substantial portion of their earnings as dividends to shareholders. This approach is often seen in mature industries where growth opportunities are limited.