A Dividend Payment For Shareholders

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A dividend is the part of a firm`s earnings that are paid to the shareholder, either in monetary terms or as shares. In the UK, dividends are paid by UK-quoted companies semi-annually and are taxed depending on an individual`s income (Arnold, 2008 & GOV.UK, 2015). According to the Financial Times (2015) however, a dividend payment to shareholders is not an obligation, in fact a business`s board of directors are able to opt whether they desire to make a dividend payment or not, depending mostly on the health of the business. If so, the dividend payment to shareholders is made from a firm`s accumulated profits or reserves pots, with the anticipation that the firm can cover this withdrawal of monetary funds by injecting further cash quickly and efficiently into the firm or shareholders may receive dividends in forms of shares, in this situation, a firm is unlikely to lose much as shareholders would be likely to reinvest into the firm. Conversely, if a firm`s board of directors opt the opposing decision, not to make a dividend payment, this is likely to be due to a firm supporting an insufficient cash-flow or the monetary fund’s being identified as needed urgently for more meaningful purposes, such as reducing debt (The Financial Times, 2015). Despite this, the main question in consideration is: whether a rational investor considers dividends when determining the value of shares? In order to answer this question effectively, this essay shall commence further through exploring

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