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Social ScienceTopic: Payout PolicyWhat is the advantage(s) of dividends against retained earnings?
Topic: Payout Policy
What is the advantage(s) of dividends against retained earnings?
Expert Answer
Dividend is the share which is given to the shareholders when from the company's profit. Dividend can only be given when the company earns profit. It is not a fixed interest which is paid to the debenture holders. Dividend can be of two types (i) equity shares dividend: The amount of profit distributed among equity shareholders after distributing the preference dividend is known as equity shares dividend. (ii) Preference shares dividend: The amount paid to the preference shareholders from the company's profit which is available for dividend distribution.
Retained earnings is the net income that a firm has left with after paying the dividend.
It is advantageous to pay stable dividend against retained earnings because of following reasons:
By paying dividend to their shareholders, the company sent their shareholders a message that the company is growing and earning profit.
It also tells them about the company’s financial st...
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