Impact of Dividend Policy on Companies’ Performance

The dividend policy has grown over the years. This may be so that the company projects itself as a less risky share and thus also gaining investors faith. The investors buy its shares and thus increase its demand. This helps to gives positive signals to the investors signalling that the company is stable and can generate earnings steadily. This hypothesis is gains standing from the dividend hypothesis theory.

When a company decides to pay dividends, it has to be careful on how much it will be given to the shareholders. It is of no use to pay shareholders dividends

Dividends are calculated on the Average Daily Balance and paid monthly (dividend rates are determined by the board of directors each month)

The four options for dividend disbursement that FPL has are to first to keep the dividends at the status quo of 1.6%, second to slower the dividend growth to 1%, third to freeze dividend, and last to reduce or eliminate the dividend completely. When analyzing the first option, which is the keep the dividends at an increasing 1.6% per year, exhibit TN-4 shows that dividend payouts do increase from $468.38 million in 1994 to $499.08 million in 1998 with a resulting negative net cash after dividends every year till 1997 when cash is $110 million and 1998 when cash is $102 million. The payout ratio however does reduce to 84% by 1998.

Dividends per share: are equal to the amount of net income distributed to shareholders divided by the number of shares outstanding.

The main purpose of the report is to make a decision for Linear Technology on dividend policy. The report analyzed the impact of changing future dividend policy on the value of the company, based on its historical performance, financial history and market trends.

Dividends are payments made by a company to its shareholders during a specified time intervals, say, quarterly or yearly. It is the portion of corporate profits paid out to stockholders. When a company earns money out of the business, that money can be put to two uses: it can either be re-invested in the business or it can be paid to the shareholders. This payment is called dividend.

Baker et al. (2012) investigate factors that lead to the decision not pay cash dividends from Canadian mangers' perspective. The evidence shows that growth expansion opportunity, low profitability and cash constraints as the major causes underlying firms' decision not pay dividends. Also the results suggest taxations is at best second order as determinants of dividends.

In practice, dividend policy will be affected by taxes as tax rates for different categories of investors will differ. Also, a firm’s dividend policy is perceived by the financial markets to be a signaling mechanism. A cut back in dividends may signify that the firm perceives tough

a. Companies decided each year’s dividend by looking at their capital expenditure requirements and then distributing whatever cash is left over.

Because often dividends are perceived as spendable income (some stock holders look at stocks as a source of income as it is easier to get a dividend instead of selling the stocks). Sometimes investment opportunities are low, they reach the limit of their marketplace, so companies decides to distribute cash in the form of dividends. For some companies it is a way of showing that the company is stable financially and can fulfill the commitment of paying out a dividend. Also it is a way for companies to mitigate agency problems when they have excess cash.

3. Residual dividend policy – after financing all the projects that provide positive cash flow, the left over funds are distributed to shareholders.

2. Dividends are decided by: (I) The managers of a firm (II) The government (III) The board of directors A) I only B) II only C) III only D) I and II only Answer: C Type: Easy Page: 416

A dividend is a usually distributed in cash form to stock holders of a corporation approved by the board of director. It may also include stock dividend or other forms of payment. A stock dividend represents a distribution of additional shares to common stockholders. Dividends are only cash payments regularly made by corporations to their stockholders.

Dividend is that part of earning which is distributed among the shareholders. The decisions about when and how much earnings should be paid as dividends is part of the firm 's dividend policy. It is irrefutable that dividend policy is controversial issue as some people opine that dividends are relevant for the valuation of company and others think that dividend does not effect the market price of shares and valuation of firm. Besides this, the market where long term investment like share bonds are traded is capital market. In the following paragraphs, i will put my emphasis on both issues the dividend relevance theory along with roles and importance of capital market.