Dividend Policy (Determinants Vis-A-Vis Competitors)

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Dividend Policy (Determinants Vis-A-Vis Competitors) This project aim to study the need for dividend Policy and different theories of dividend W.R.T. determinants vis-à-vis competitors’ dividend policy. Objective of the study: • To understand the importance of the dividend decision and their impact on market price of share. • To know the various dividend policies followed by the company and competitors. • To understand the limitations of the various divided theories. • To compare the various theories of dividend. The dividend Decision is one of the most important elements of financial management decision. Dividend Decision will help the company in the capital markets and establish a good corporate image for the company’s long-term development …show more content…

Dividend decision depends upon the preference of the shareholder and investment opportunities available to the company. Dividend decision has a strong influence on the market price of the share. Hence the dividend policy determines its impact on shareholder’s wealth. The optimum dividend policy is one which maximizes the value of shares and wealth of the shareholders. Dividend policy is concerned with financial decision W.R.T. paying cash dividend in the present or paying an increased dividend at a later stage. Management must also choose the form of the dividend distribution, cash dividends or stock dividend. Various factors may be taken into consideration; where shareholders pay tax on dividends, company may elect to retain earnings and prefer a stock dividend, in both cases value of shareholders increases. Dividends paid by the company have psychological positive impact on investors. The company which do not pay dividends are rated lower by investors thus affecting the share …show more content…

The company finances opportunities either through retained earnings or by issuing new shares to raise capital. The amount used up in paying out dividends is replaced by the new capital raised through issuing shares. This will affect the value of the company in an opposite way. The increase in the value because of the dividends will be offset by the decrease in the value for new capital raising. Modigliani – Miller’s valuation model is based on the assumption of same discount rate applicable to all the

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